IAS27 Separate financial statements

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SAndra
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IAS27 Separate financial statements

Post by SAndra »

Hi All,

Understand that IFRS 3 requires to recognize contingent consideration at fair value as part of business combination.

However, in the separate financial statement prepared under IAS 27, do we include the following as cost of investment in subsidiary:
(a) deferred consideration payable to seller which is contingent upon future profit?
(b) committed amount of future capital injection, as the acquisition of subsidiary in this scenario is through issuance of additional shares to buyer (cash+ committed future capital injection)

Thanks
JRSB
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Re: IAS27 Separate financial statements

Post by JRSB »

Re a, it seems the contingent consideration is a current obligation of uncertain timing or amount, so a provision based on fair value of that contingent consideration. In which case, where else would the Dr go. (Ie yes it goes to investment in sub, since 'cost' definition includes fair value of consideration given).

b Not clear what is meant by acquisition being cash+committed funds since the funds are going to the sub, rather than the seller? Again, at the point there is an obligation to transfer cash (creating a liability), the debit will be the investment.
Last edited by JRSB on 11 Apr 2021, 23:42, edited 1 time in total.
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JRSB
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Re: IAS27 Separate financial statements

Post by JRSB »

Your issue will be deciding where changes to expected contingent payments go, (change the investment, or P&L) - and that's a grey area the same as acquiring tangible assets for contingent consideration etc
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Marek Muc
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Re: IAS27 Separate financial statements

Post by Marek Muc »

re. (a) See here:
https://ifrscommunity.com/knowledge-bas ... sideration

re. (b) Not clear to me as well, write more please, along with the rationale behind this commitment. Why would a seller want you to commit to a future capital contribution to a company that is no longer theirs?
SAndra
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Re: IAS27 Separate financial statements

Post by SAndra »

thanks for the replied.

for a) I have seen the link previously, but it was not explicitly mentioned. As such, is there an accounting policy choice whether to apply cost or fair value of contingent consideration in a separate financial statements?

for b) the acquirer is not buying from the seller. Instead, the target company have registered with local authority to raise additional 80% (for example) share capital to be contributed by the acquirer, out of the 80%, 50% shares has been issued and paid in cash, whereas 30%'s shares will be issued and is payable upon on-demand basis from the target company. As such my concern is whether we should consider this 30% commitment of future capital contribution as cost of investment as the shares has not been issued and the target company has not demand on it yet.

Appreciate everyone's help.
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Marek Muc
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Re: IAS27 Separate financial statements

Post by Marek Muc »

a) yes this is a policy choice

b) careful analysis of details is needed, but it seems that nothing should be recognised now, especially that the parent controls the subsidiary, so effectively the parent decides if and when future capital increases are made
SAndra
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Joined: 09 Apr 2021, 13:11

Re: IAS27 Separate financial statements

Post by SAndra »

Thanks. :)
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