The Interpretations Committee received a request to clarify whether a business meets the definition of a 'non-monetary asset'. The question was asked within the context of identifying whether the requirements of SIC-13 Jointly Controlled Entities—Non-Monetary Contributions by Venturers and IAS 28 Investments in Associates and Joint Ventures (revised in 2011) apply where a business is contributed to:
- jointly controlled entity (JCE) as defined in IAS 31 Interests in Joint Ventures; or to
- a joint venture (JV) as defined in IFRS 11 Joint Arrangements; or to
- an associate in exchange for an equity interest in that JCE/JV or associate.
At the January 2012 Interpretations Committee meeting, the Interpretations Committee noted that this matter is related to the issues arising from the acknowledged inconsistency between the requirements in IAS 27 aConsolidated and Separate Financial Statementsa (revised in 2008) and SIC-13, in dealing with the loss of control of a subsidiary that is contributed to a JCE/JV or an associate. SIC-13 restricts gains and losses arising from contributions of non-monetary assets to a JCE to the extent of the interest attributable to the other equity holders in the JCE. IAS 27 requires full profit or loss recognition on the loss of control of the subsidiary. This inconsistency between IAS 27 and SIC-13 will remain when IFRS 10a Consolidated Financial Statements replaces IAS 27a, at which time SIC-13 will be withdrawn. In fact, the requirements in IFRS 10 on the accounting for the loss of control of a subsidiary are similar to the requirements in IAS 27, and the requirements in SIC-13 are incorporated in IAS 28 (2011).
In response to this request, the Interpretations Committee recommended to the IASB to amend IFRS 10 and IAS 28 (2011).
In September 2012 the IASB tentatively decided to publish an exposure draft proposing amendments to IFRS 10 and IAS 28. The IASB proposes to amend IAS 28 (2011) so that:
- the current requirements regarding the partial gain or loss recognition for transactions between an investor and its associate or joint venture only apply to the gain or loss resulting from the sale or contribution of assets that do not constitute a business as defined in IFRS 3; and
- the gain or loss resulting from the sale or contribution of assets that constitute a business as defined in IFRS 3 between an investor and its associate or joint venture is recognised in full.
The IASB also proposes to amend IFRS 10 so that the gain or loss resulting from the sale or contribution of a subsidiary that does not constitute a business as defined in IFRS 3 between an investor and its associate or joint venture is recognised only to the extent of the unrelated investors’ interests in the associate or joint venture. The consequence is that a full gain or loss would be recognised on the loss of control of a subsidiary that constitutes a business as defined in IFRS 3, including cases in which the investor retains joint control of, or significant influence over, the investee.
The balloting process of Exposure Draft Accounting for the sale or contribution of assets between an investor and its associate or joint venture (Proposed amendments to IFRS 10 and IAS 28) (the Exposure Draft) is underway and publication is scheduled for December 2012.