Free asset given to owner

[Andreas Kyriacou]

Hi guys,

I would appreciate your input on this.

A parent Company wishes to Fair Value its subsidiary in it's separate financial statements. As per IAS 27 par.10 this can be made.
Therefore, a valuation took place and fair value was found to be €10,000,000. Cost was €500,000.

Parent selected FVTOCI category and transferred the revaluation gain to OCI. Few days later the parent resolved to donate all the shares of the subsidiary to the owner, who is an individual for free.

OCI was realized via Retained Earnings and the cost of the subsidiary (€10,000,000) was transferred to retained earnings as dividends to owner.

As per the conceptual framework, the definition of income and expense does not include contributions to/from owner. So I guess this is correct.

Or not???

[Marek Muc]

In general, this was correct and such distributions are covered in IFRIC 17 Distributions of Non-cash Assets to Owners

Hopefully the entity does realise that the measurement method in IAS 27.10 is an accounting policy to be applied consistently and to all subsidiaries?
Why didn't the company want to keep the subsidiary at cost and realise a gain in P&L in accordance with IFRIC 17.14?

[Andreas Kyriacou]

I think that the reason they want to FV the subsidiary is based on tax incentives in the foreign jurisdiction the shareholder is based.
Is the change from cost to FV considered a change in accounting policy as per IAS 8? And if yes does it mean that retrospective corrections needs to be made?

[Marek Muc]

of course!