Determining cost of an investment in separate financial statements

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22 May 2008

The IASB has amended two standards to change the way the cost of an investment in the separate financial statements is measured on first-time adoption of IFRSs.

The amended standards are IFRS 1 First-time Adoption of IFRSs and IAS 27 Consolidated and Separate Financial Statements. The Board made the amendments because retrospectively determining cost and applying the cost method in accordance with IAS 27 on first-time adoption of IFRSs cannot, in some circumstances, be achieved without undue cost or effort.

The amendments to IFRS 1 and IAS 27:

  • Allow first-time adopters to use a 'deemed cost' of either fair value or the carrying amount under previous accounting practice to measure the initial cost of investments in subsidiaries, jointly controlled entities, and associates in the separate financial statements
  • Remove the definition of the cost method from IAS 27 and replace it with a requirement to present dividends as income in the separate financial statements of the investor
  • Require that, when a new parent is formed in a reorganisation, the new parent must measure the cost of its investment in the previous parent at the carrying amount of its share of the equity items of the previous parent at the date of the reorganisation.

The amendments to IFRS 1 and IAS 27 are effective for annual periods beginning on or after 1 January 2009, with earlier application permitted.

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