IFRS 10 and IAS 28 - Amendments - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

Project History

On 13 December 2012, the IASB published the Exposure Draft ED 2012/6 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Proposed amendments to IFRS 10 and IAS 28) ('the ED') with a request for comments by 23 April 2013.

The ED addresses the acknowledged inconsistency between the requirements in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011), in dealing with the loss of control of a subsidiary that is contributed to an associate or joint venture.  

• IFRS 10 requires that any investment the parent has in the former subsidiary after control is lost should be measured at fair value and that any resulting gain or loss should be recognised in profit or loss (full gain or loss recognition).

• IAS 28 requires that gains and losses resulting from upstream and downstream transactions between an investor and its associate or a joint venture should only be recognised to the extent of the interest attributable to the other equity holders in the associate or joint venture (partial gain or loss recognition).

• a 'full' gain or loss should be recognised on the loss of control of a business, as defined in IFRS 3, regardless of whether the transaction is between an investor and its associate or joint venture; and

• a 'partial' gain or loss should be recognised in accounting for the sale or contributions of assets or subsidiaries that do not constitute a business between an investor and its associate or joint venture.

No amendments are proposed to IAS 27 (as issued in 2008) and IAS 28 Investments in Associates as these pronouncements will be superseded from 1 January 2013 (i.e. before the amendments proposed in the ED can be finalised).  

EFRAG's Comment Letter

In January 2013, EFRAG published its draft comment letter.  In April 2013, EFRAG published its final comment letter. EFRAG agreed that there was an inconsistency between IAS 28 and IFRS 10 and considered that the amendments had the merit of being a short-term pragmatic solution to address diversity in practice. However, EFRAG was concerned that the ED would require an entity to determine whether the asset being sold or contributed met the definition of a business under IFRS 3 Business Combinations. Applying the definition of a business in IFRS 3 was not always straightforward, often required considerable judgement and the proposed approach put considerable stress on the definition of a business.  EFRAG was also concerned that the ED would raise a number of other related issues within IFRS 10 and IAS 28, which were explained in the letter. 

Latest developments

On 11 September 2014, the IASB issued the narrow-scope amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011). In January 2015, the IASB tentatively decided to correct an identified contradiction between the amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and paragraph 32 of IAS 28. More specifically, the IASB decided to include these additional changes within the forthcoming Exposure Draft on Elimination of Gains or Losses arising from Transactions between an Entity and its Associate or Joint Venture and postpone the effective date of the amendments to IFRS 10 and IAS 28 (published in September 2014) to align the effective dates of the different amendments.

In the light of the interactions between the amendments to IFRS 10 and IAS 28 and the IASB's forthcoming Exposure Draft, and their common effective date, on 17 February 2015 EFRAG recommended to the European Commission to postpone the endorsement process relating to the amendments to IFRS 10 and IAS 28 until the project on Elimination of Gains or Losses Arising from Transactions between an Entity and its Associate or Joint Venture is completed.   

On 10 August 2015, the IASB issued the Exposure Draft Effective Date of Amendments to IFRS 10 and IAS 28 ("the ED") to propose deferring indefinitely the effective date of the 2014 Amendments.

In December 2015, the IASB published Effective Date of Amendments to IFRS 10 and IAS 28 ("the 2015 Amendments") which deferred indefinitely the effective date of Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) ("the 2014 Amendments") by removing the original effective date of 1 January 2016 and indicating that a new effective date would be determined at future date when the IASB finalises the revisions, if any, that would result from the research project on equity method.

In February 2016, EFRAG sent a letter to the European Commission. In the letter, EFRAG brings a number of issues to the European Commission's attention before it takes a decision on the endorsement process of the two amendments and highlights that whether the amendments are endorsed or not in Europe, entities will still be able to claim compliance with IFRS as issued by the IASB.