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Friday 25 April 2014

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Issues recommended for narrow scope amendment


 

IAS 28 Investments in Associates and Joint Ventures—Elimination of gains arising from a transaction between a joint venturer and its joint venture

The IFRS Interpretations Committee received a request to clarify the accounting for a transaction between a joint venturer (an entity) and its joint venture. The request describes a circumstance in which the amount of gains to eliminate in a ‘downstream’ transaction in accordance with paragraph 28 of IAS 28 exceeds the amount of the entity’s interest in the joint venture. Specifically, the submitter requested that the Interpretations Committee should clarify whether:

a. the gain from the transaction should be eliminated only to the extent that it does not exceed the carrying amount of the entity’s interest in the joint venture; or

b. the remaining gain in excess of the carrying amount of the entity’s interest in the joint venture should also be eliminated and if so, what it should be eliminated against.

At the March 2013 meeting, the Interpretations Committee noted that the entity should eliminate the gain from a ‘downstream’ transaction to the extent of related investors’ interest in the joint venture, even if the gain to be eliminated exceeds the carrying amount of the entity’s interest in the joint venture, as required by paragraph 28 of IAS 28.

The Interpretations Committee also noted that presenting the eliminated gain in excess of the carrying amount of the entity’s interest in the joint venture as a deferred gain would be appropriate because other alternative accounting treatments are not consistent with the principle described in IAS 28. However, the Interpretations Committee observed that IAS 28 does not provide sufficient guidance on this issue.

Consequently, the Interpretations Committee decided to recommend to the IASB that it should propose to amend IAS 28 in a narrow-scope amendment project by adding specific guidance on how to account for the corresponding entry for the eliminated gain in excess of the carrying amount of the entity’s interest in the joint venture in a ‘downstream’ transaction.

Observer note: Agenda Paper 10 (May 2013)
Meeting audio: Agenda Paper 10 (May 2013)