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IAS 27 – Group reorganisations in separate financial statements (finalised)

Date recorded:

The Committee received a request for clarification on whether entities that are established as new intermediate parents within a group can determine the 'cost' of their investments in subsidiaries when they account for these investments in their separate financial statements by applying paragraph 38(a) of IAS 27 Consolidated and Separate Financial Statements or paragraph 10(a) of IAS 27 Separate Financial Statements by analogy. The nature of this request serves to address reorganisations of groups that result in the new intermediate parent having more than one subsidiary.

The Committee noted two comment letters provided in response to the July 2011 tentative decision – both of which supported the Committee's decision not to add the issue to its agenda (with editorial comments on the wording of the agenda decision).

Following from discussions in July 2011, the Committee confirmed that paragraphs 38B and 38C of IAS 27 (amended 2008) or paragraphs 13 and 14 of IAS 27 (revised 2011) apply only when the assets and liabilities of the new group and the original group (or original entity) are the same before and after the reorganisation.

The Committee observed that this condition is not met in reorganisations that result in the new intermediate parent having more than one subsidiary and therefore these paragraphs in IAS 27 do not apply to such reorganisations, such as the reorganisation presented in the submission. Furthermore, the Committee noted that the IASB explained in paragraph BC66Q of IAS 27 (amended 2008) and paragraph BC27 of IAS 27 (revised 2011) that paragraphs 38B and 38C of IAS 27 (amended 2008) and paragraphs 13 and 14 of IAS 27 (revised 2011), respectively, do not apply to other types of reorganisations.

In addition, the Committee noted that the guidance in paragraphs 38B and 38C of IAS 27 (amended 2008) or paragraphs 13 and 14 of IAS 27 (revised 2011) cannot be applied to such reorganisations by analogy because this guidance is an exception to the normal basis for determining the cost of an investment in a subsidiary under paragraph 38(a) of IAS 27 (amended 2008) or paragraph 10(a) of IAS 27 (revised 2011).

One Committee member expressed a concern that the draft agenda decision only specified the inapplicability of paragraphs 38B and 38C to this specific issue as opposed to specifying what guidance is applicable in measuring cost in the separate financial statements. Specifically, the Committee member was concerned that the agenda decision might yield fair value measurement as opposed to a cost-basis measurement if paragraphs 38B and 38C are not applicable. Other Committee members noted that these paragraphs are exceptions so the relevant guidance would apply if the exceptions are not met (e.g., accounting on a cost basis).

However, based on the sufficiency of guidance in IAS 27 (amended 2008) and IAS 27 (revised 2011), the Committee decided not to add this issue to its agenda.

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