Jointly controlled entities and associates in Separate financial statements Ind AS 27

Last updated on 14/09/2022 0 By indiafreenotes

Partial disposal of an investment in a subsidiary

The accounting depends on whether control is retained or lost:

  • Partial disposal of an investment in a subsidiary while control is retained. This is accounted for as an equity transaction with owners, and gain or loss is not recognised.
  • Partial disposal of an investment in a subsidiary that results in loss of control. Loss of control triggers remeasurement of the residual holding to fair value. Any difference between fair value and carrying amount is a gain or loss on the disposal, recognised in profit or loss. Thereafter, apply IAS 28, IAS 31, or IAS 39, as appropriate, to the remaining holding.

Acquiring additional shares in the subsidiary after control is obtained

Acquiring additional shares in the subsidiary after control was obtained is accounted for as an equity transaction with owners (like acquisition of ‘treasury shares’). Goodwill is not remeasured.

Separate financial statements of the parent or investor in an associate or jointly controlled entity

In the parent’s/investor’s individual financial statements, investments in subsidiaries, associates, and jointly controlled entities should be accounted for either: [IAS 27.37]

  • at cost
  • in accordance with IAS 39.

The parent/investor shall apply the same accounting for each category of investments. Investments that are classified as held for sale in accordance with IFRS 5 shall be accounted for in accordance with that IFRS. [IAS 27.37] Investments carried at cost should be measured at the lower of their carrying amount and fair value less costs to sell. The measurement of investments accounted for in accordance with IAS 39 is not changed in such circumstances. [IAS 27.38] An entity shall recognise a dividend from a subsidiary, jointly controlled entity or associate in profit or loss in its separate financial statements when its right to receive the dividend is established. [IAS 27.38A]

Disclosure

Disclosures required in consolidated financial statements: [IAS 27.40]

  • The nature of the relationship between the parent and a subsidiary when the parent does not own, directly or indirectly through subsidiaries, more than half of the voting power.
  • The reasons why the ownership, directly or indirectly through subsidiaries, of more than half of the voting or potential voting power of an investee does not constitute control
  • The reporting date of the financial statements of a subsidiary when such financial statements are used to prepare consolidated financial statements and are as of a reporting date or for a period that is different from that of the parent, and the reason for using a different reporting date or period.
  • The nature and extent of any significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances.

Disclosures required in separate financial statements that are prepared for a parent that is permitted not to prepare consolidated financial statements: [IAS 27.41]

  • The fact that the financial statements are separate financial statements; that the exemption from consolidation has been used; the name and country of incorporation or residence of the entity whose consolidated financial statements that comply with IFRS have been produced for public use; and the address where those consolidated financial statements are obtainable,
  • A list of significant investments in subsidiaries, jointly controlled entities, and associates, including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held, and
  • a description of the method used to account for the foregoing investments.

Disclosures required in the separate financial statements of a parent, investor in a jointly controlled entity, or investor in an associate: [IAS 27.42]

  • The fact that the statements are separate financial statements and the reasons why those statements are prepared if not required by law,
  • A list of significant investments in subsidiaries, jointly controlled entities, and associates, including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held.
  • A description of the method used to account for the foregoing investments.

Preparation of separate financial statements

Requirement for separate financial statements

IAS 27 does not mandate which entities produce separate financial statements available for public use. It applies when an entity prepares separate financial statements that comply with International Financial Reporting Standards. [IAS 27(2011).3]

Financial statements in which the equity method is applied are not separate financial statements. Similarly, the financial statements of an entity that does not have a subsidiary, associate or joint venturer’s interest in a joint venture are not separate financial statements. [IAS 27(2011).7]

An investment entity that is required, throughout the current period and all comparative periods presented, to apply the exception to consolidation for all of its subsidiaries in accordance with of IFRS 10 Consolidated Financial Statements presents separate financial statements as its only financial statements. [IAS 27(2011).8A]

[Note: The investment entity consolidation exemption was introduced into IFRS 10 by Investment Entities, issued on 31 October 2012 and effective for annual periods beginning on or after 1 January 2014.]

Choice of accounting method

When an entity prepares separate financial statements, investments in subsidiaries, associates, and jointly controlled entities are accounted for either: [IAS 27(2011).10]

  • at cost, or
  • in accordance with IFRS 9 Financial Instruments (or IAS 39 Financial Instruments: Recognition and Measurement for entities that have not yet adopted IFRS 9),
  • using the equity method as decribed in IAS 28 Investments in Associates and Joint Ventures. [See the amendment information below.]

The entity applies the same accounting for each category of investments. Investments that are accounted for at cost and classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are accounted for in accordance with that IFRS. Investments carried at cost should be measured at the lower of their carrying amount and fair value less costs to sell. The measurement of investments accounted for in accordance with IFRS 9 is not changed in such circumstances.

If an entity elects, in accordance with IAS 28 (as amended in 2011), to measure its investments in associates or joint ventures at fair value through profit or loss in accordance with IFRS 9, it shall also account for those investments in the same way in its separate financial statements. [IAS 27(2011).11]

Investment entities

[Note: The investment entity consolidation exemption was introduced into IFRS 10 by Investment Entities, issued on 31 October 2012 and effective for annual periods beginning on or after 1 January 2014.]

If a parent investment entity is required, in accordance with IFRS 10, to measure its investment in a subsidiary at fair value through profit or loss in accordance with IFRS 9 or IAS 39, it is required to also account for its investment in a subsidiary in the same way in its separate financial statements. [IAS 27(2011).11A]

When a parent ceases to be an investment entity, the entity can account for an investment in a subsidiary at cost (based on fair value at the date of change or status) or in accordance with IFRS 9.  When an entity becomes an investment entity, it accounts for an investment in a subsidiary at fair value through profit or loss in accordance with IFRS 9. [IAS 27(2011).11B]

Recognition of dividends

An entity recognises a dividend from a subsidiary, joint venture or associate in profit or loss in its separate financial statements when its right to receive the dividend in established. [IAS 27(2011).12]

(Accounting for dividends where the equity method is applied to investments in joint ventures and associates is specified in IAS 28 Investments in Associates and Joint Ventures.)

Group reorganisations

Specified accounting applies in separate financial statements when a parent reorganises the structure of its group by establishing a new entity as its parent in a manner satisfying the following criteria: [IAS 27(2011).13]

  • the new parent obtains control of the original parent by issuing equity instruments in exchange for existing equity instruments of the original parent
  • the assets and liabilities of the new group and the original group are the same immediately before and after the reorganisation, and
  • the owners of the original parent before the reorganisation have the same absolute and relative interests in the net assets of the original group and the new group immediately before and after the reorganisation.