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IAS 28 — Elimination of gains arising from a transaction between a joint venture and its joint venture

Date recorded:

In January 2013, the Committee received a request to clarify the accounting for a transaction between a joint venture (an entity) and its joint venture, specifically in a situation when the amount of gains to eliminate from the transaction exceeds the amount of the entity’s interest in the joint venture.

The Committee had a discussion in March 2013. There are basically two views on how the gain should be eliminated:

View A – the gain from the transaction is eliminated only to the extent that it does not exceed the carrying amount of the entity’s interest in the joint venture, similarly to the requirement in paragraph 39 of IAS 28; or

View B – the remaining gain in excess of the carrying amount of the entity’s interest in the joint venture should also be eliminated based on paragraph 28 of IAS 28.

If View B is applied, it is also necessary to determine how to eliminate gain in excess of the carrying amount of the entity’s interest in the joint venture:

  1. Method 1 – presented as deferred gain;
  2. Method 2A – reduce the related asset, but if a related asset is cash or cash equivalents, recognise the eliminated gain in profit or loss; and
  3. Method 2B – reduce the related asset, but if a related asset is cash or cash equivalents, recognise the eliminated gain as a deferred gain.

Following the previous discussions by the Committee, the Staff came to the meeting with the proposals to support View 2, Method 1 and not to add the issue to the agenda.  Proposed wording for tentative agenda decision was also provided.

The majority of the Committee members supported Method 1. One of the Committee members did not agree with the elimination of the gain at all.

In terms of taking this issue forward, a Committee member questioned whether this should be better addressed via an amendment to IAS 28 (vs. rejection notice). When put to a vote, 9 Committee members voted to bring this issue to the IASB.

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