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Hi,

I am battling with choosing the most applicable accounting method for recognising a 100% held subsidiary in the parents separate financial statements.
We are not yet at the stage of preparing Consolidated Financial Statements however this is the goal.

Objective:
To most appropriately record the value of the 100% held subsidiary in the parents separate financial statements.

Details:
-Parent bought the subsidiary for only $100.
-Subsidiary's Net Asset Value is $1 billion dollars.

If I were to apply the cost method, the Investment in Subsidiary would be $100 with no further changes until disposal etc.
However this is completely understating what the value of the investment is.

Can I apply IFRS 9 in this case? I am getting confused as the standard exempts "those interests in subsidiaries, associates and joint ventures...."
What would the subsequent journals be? and can a Fair Value gain be recognised through P/L?

Thanks!

If you want to show the 'value' then don't apply cost - apply fair value! It's an option in IAS 27.

Did you just acquire it? Or how did you record it in the past?

PS sounds like a great investment for $100!

Why do you not consider the equity method in accordance with IAS 27? The equity method produces more consistent results with consolidation than does FVTPL.

I am part of the FS clean up and preparation for auditing. So in the past only $100 has been recognised when initially purchased way back in the day. To me this is not a true reflection of the investment in subsidiary.

Equity Method:
How does the Equity Method apply for Subsidiaries? what would the journals be?
I thought IAS 28 only applied to joint ventures and associates?

Fair Value:
If we were to apply Fair value and because this is internal, would the NAV for the Subsidiary be suitable to use without having to bring in outside valuers?
Journals would be:

Dr Investment in Sub
Cr FVTPL
Value based on the movement in NAV

Thanks so much!

IAS 27 allows to account for subsidiaries in a separate FS either at cost, in accordance with IFRS 9, or using the equity method. So just stating the sub at $100 is perfectly correct from auditors’ perspective, though it might not reflect the economic reality.

You will need to derive some fair value from NAV if you elect to use FVTPL or adjust NAV about goodwill and inter-company unrealized profit if you elect to use the equity method. But it could be the matter of materiality, so you can do whatever you want to as long as that is acceptable to your auditor and meets your needs.

If it is already appearing in your books at cost, then u will have to change the accounting policy for measuring it at another method which would be applied retrospectively. I would advise that u should better not change the accounting policy. The reality is reflected in the consolidated financial statements and the shareholder knows it. Even Earning per shares are only disclosed in consolidated financial statements.

@pub_acco
Thanks so much. Points are valid and will take them into consideration. We are not yet audited but should consider that for the future.

@Ifran
IFRS standards have not been applied in the past something we are working towards. I do think the economic reality should be reported especially because consolidated accounts have not yet been produced. If we had a consolidation then for sure cost would be used.


Which standard provides guidance for what to do if your investment is Negative in terms of NAV?

Thanks so much!

Investment is negative in terms of NAV but it's worth $1 billion?

Implications of negative NAV depend on whether you use cost method (impairment), equity method (link) or fair value (no direct implications in fact)

@Marek - Haha no that query is for another subsidiary.
I should have specified.

It's amazing that you don't need to produce consolidated accounts when the group is that size!

Like I have said that is the plan but we are waiting on a restructuring of the company.
We are not audited yet but will need to be.

I think it'll best if you stick with measurement at cost in separate financial statements, you'll save yourself a lot of headache. Look at disclosure requirements in IFRS 13 for level 3 fair value measurement...