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IAS 27 — Non-cash acquisition of non-controlling interest

Date recorded:

In June 2012, the Committee received a request for guidance on the accounting for the purchase of non-controlling interest (NCI) when the consideration includes non-cash items. The submitter asked the Committee to clarify whether the difference between the fair value of the consideration given and the carrying amount of the assets transferred should be recognised in equity or in profit or loss.

The submitter identified that there was an apparent conflict between paragraphs 30 and 31 of IAS 27 and IFRIC 17 Distribution of non-cash assets to owners. Under paragraphs 30 and 31 of IAS 27, after control of an entity is obtained, changes in parent’s ownership interest that do not result in a loss of control are accounted for as an equity transaction. However, according to IFRIC 17, the difference between the carrying amount of the non-cash assets distributed to owners and the fair value of those assets is recognised in profit or loss.

The staff presented their analysis to the Committee. They provided an example of a fact pattern in which a controlling shareholder purchases a NCI transferring a non-cash asset to the non-controlling shareholder. The staff presented both the views under IAS 27 and IFRIC 17 and concluded that the difference between the fair value of the consideration given and the carrying amount of the assets transferred should be recognised in profit or loss by applying IFRIC 17 by analogy.

Although acknowledging that a non-cash acquisition of NCI is outside the scope of IFRIC 17, the staff was of the opinion that certain paragraphs of the Basis for Conclusions on IFRIC 17 (paragraphs BC41, BC42, BC50, BC53 and BC54) were applicable to a non-cash acquisition of NCI. The staff used the following paragraphs to form their conclusion:

The staff were of the opinion that there was no conflict between IAS 27 and IFRIC 17 as they deal with different things. Paragraph 31 of IAS 27 deals with the difference between the carrying amount of the NCI and the fair value of the consideration given (which should be recognised in equity) whereas IFRIC 17 deals with the difference between the fair value of the consideration given and the carrying amount of the assets transferred (which should be recognised in profit or loss). They also stated that the accounting treatment of a non-cash acquisition of NCI should be consistent with the accounting for the disposal of the non-cash asset and subsequent purchase of the NCI using the cash received from the disposal of the non-cash asset.

The staff recommended that the Committee should not take this issue onto its agenda. They also proposed a tentative agenda decision for the Committee to review.

The Committee tentatively agreed with the staff’s recommendation and conclusions and suggested only minor amendments to the wording of the tentative agenda decision.

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