The Board published the exposure draft Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (proposed amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements) in December 2007. The comment period ended in February 2008. At this meeting the staff presented an analysis of the 64 comment letters received and the Board deliberated issues raised by respondents.
The Board affirmed the following proposals:
- an entity, at its date of transition to IFRSs in its separate financial statements, may use a deemed cost to account for investments in subsidiaries, jointly controlled entities, or associates;
- the deletion of the definition of the ‘cost method’ from IAS 27;
- an entity is required to present dividends from investments in subsidiaries, jointly controlled entities and associates as income in its separate financial statements; and
- in a reorganisation in which equity instruments are issued by a new parent in exchange for equity instruments of the previous parent, the new parent should measure the cost of its investment in the previous parent at the carrying amount of the equity instruments of the previous parent in the separate financial statements of the previous parent at the date of the reorganisation.
The exposure draft proposed that an investor receiving a dividend from its subsidiary, jointly controlled entity or associate would be required to test its related investment for impairment. In the light of the comments received, the Board revised its proposal so that the receipt of a dividend may be an indicator of impairment.
The Board decided that entities should apply the amendments prospectively, with the exception that entities would be permitted to apply retrospectively the requirements related to the formation of a new parent. The effective date for the amendments will be 1 January 2009. Earlier application will be permitted.