Agenda decision to finalise – Agenda Paper 2

Background

In September 2017, the IC discussed how an entity accounts for a transaction in which it contributes property, plant and equipment (PPE) to a newly-formed associate in exchange for shares in that associate. The entities that set up the associate are under common control.

The submitter asked three questions:

• a) Whether IFRSs provide a general exemption from applying the requirements of a particular Standard to common control transactions;
• b) Do ‘unrelated investors’ in IAS 28.28 (which requires an investor to recognise gains and losses from upstream and downstream transactions only to the extent of unrelated investors’ interests in the associate) refer to:
  • i) any investor other than the reporting entity, or
  • ii) investors that do not meet the definition of a related party in IAS 24? and
• c) Should the investor determine the gain or loss on contributing PPE to the associate and the cost of its investment in the associate based on:
  • i) the fair value of the PPE contributed, or
  • ii) the fair value of the acquired interest in the associate?

The IC tentatively concluded that:

• a) Unless a Standard specifically excludes common control transactions from its scope, that Standard is applicable to common control transactions;
• b) The term ‘unrelated investors’ in IAS 28.28 refers to investors other than the reporting entity (including its consolidated subsidiaries); and
• c) The investor should determine the gain or loss on contributing PPE and the cost of its investment in the associate based on the fair value of the PPE contributed.

Staff analysis of comment letters received

All six respondents agreed with the IC’s technical conclusions and with not adding the matter to its agenda. No substantive matters were raised.

Staff recommendation

The Staff recommended that the IC finalise the agenda decision.

Discussion

The IC agreed to finalise the agenda decision without change.

For question (c), a couple of IC members were concerned that the agenda decision states the conclusion that the fair value of the PPE should be used without explaining why. The Staff reminded the IC that when they discussed the issue in September 2017, most IC members were comfortable with the conclusion but got there in different ways. Consequently, the reason for the conclusion that was included in the draft tentative agenda decision (that was presented to the IC for discussion as part of the staff paper) was removed before it was published for comment. The Staff therefore did not propose to change the wording in the current agenda decision.

Agenda paper 3

The Staff will present its analysis of the feedback received on the three tentative agenda decisions regarding the application of IFRS 15 to real estate contracts together at a future meeting.

The Staff are also currently in the process of analysing the following matters:

• IFRS 9: Dual currency bonds – whether a dual currency bond meets the solely payments of principal and interest condition in IFRS 9
• IFRS 9: Load following swaps – whether an instrument for which the notional amount varies depending on the outcome of a transaction can be a hedging instrument applying IFRS 9
• IAS 7: Short-term loans as cash equivalents – whether a short-term loan repayable on demand can be classified as cash and cash equivalents if the balance does not fluctuate between positive and negative
• IAS 12: How the initial recognition exemption in paragraphs 15 and 24 of IAS 12 applies to the recognition of right-of-use assets and lease liabilities arising under IFRS 16
• IAS 37: Voluntary payment of taxes other than income taxes – whether a voluntary payment made to a tax authority should be recognised as an asset or an expense in particular circumstances.

Discussion

There was no discussion on this paper.

The Chair mentioned that the Board will carry out a post-implementation review (PIR) on IFRS 5 as they saw a need for it from the responses to the Agenda Consultation. Outstanding IFRS 5-related submissions to the IC will be addressed as part of the PIR.