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IFRS 10 and IAS 28 (2011)

Meeting summaries and observer notes

 IFRS IC July 2012


The IFRS 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 (2011) apply where a business is contributed to:

  • a jointly controlled entity (JCE) as defined in IAS 31 Interests in Joint Ventures; or
  • a joint venture (JV) as defined in IFRS 11 Joint Arrangements; or
  • an associate

in exchange for an equity interest in that JCE/JV or associate.

At the January 2012 Committee meeting, the Committee noted that this matter is related to the issues arising from the acknowledged inconsistency between the requirements in IAS 27 Consolidated and Separate Financial Statements (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 (2008) and SIC-13 will remain when IFRS 10 Consolidated Financial Statements replaces IAS 27 (2008) and when SIC-13 will be withdrawn.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 (2008) and the requirements in SIC-13 are incorporated in IAS 28 (2011).

At the March 2012 Committee meeting, the Committee discussed various alternatives that would address the inconsistency that had been noted. The Committee decided to ask the IASB whether it wants the Committee to consider further how to resolve the inconsistency between the requirements in IAS 27 (2008) and those in SIC-13 on the basis of the different alternatives discussed.

At the May 2012 IASB meeting, the staff consulted the IASB on this matter. The IASB discussed three alternatives that would address the inconsistency:

  • Alternative 1: account for all contributions in accordance with the rationale developed in IAS 27.
  • Alternative 2: account for all contributions of businesses (whether housed in a subsidiary or not) in accordance with IAS 27 and account for all other contributions in accordance with SIC-13.
  • Alternative 3: account for all contributions to a JCE/JV or an associate in accordance with SIC-13.

The majority of the IASB members considered Alternative 1 to be the most robust alternative from a conceptual point of view, but that it would require addressing multiple cross-cutting issues. Some IASB members were concerned that the Committee would not be able to address those cross-cutting issues on a timely basis. As a result, a majority of IASB members expressed support for Alternative 2.

At the July 2012 Committee meeting, the Committee was presented with, and decided to propose, some amendments to IAS 28 (2011) and IFRS 10 in accordance with Alternative 2. The Committee noted that IAS 27 (2008) and SIC-13 do not need to be amended, because IAS 27 (2008) and SIC-13 will be superseded by the time the proposed amendments would become effective. The Committee decided that the proposed amendments to IAS 28 (2011) should affect the sale or contribution of all types of assets (that do not constitute a business) between an investor and its associate or joint venture. The staff will present the revised proposed amendments to the IASB at the September 2012 IASB meeting.

Date: 7/10/2012