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Chapter 20
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Consolidatedand Separate Financial Statements (lAS 27)
i97
Regarding entity
W,
X has 45% of the voting power, V has 25%, and T has 30%, but V and T are insti–
tutional investors, and the directors who represent these investors have no effective power. Substantial
power lies with the four directors of
W.
Although the full board retains some powers, these powers are
limited. The four directors representing
W
have effectivecontrol over most of the financing and operat–
ing policies, which would represent a significant part of the decision making. X has effective control
over V through its control over the board of directors and decision making. Therefore,
W
should be con–
solidated.
6.4 SIC 12,
Consolidation-Special-Purpose Entities
addresses the situation where a special–
purpose entity should be consolidated by a reporting entity under the consolidation principles in
lAS 27. Under SIC 12, an entity must consolidate a special-purpose entity (SPE) when , in sub–
stance, the entity controls the SPE.
6.5 IFRIC 5,
Rights to interests Arising from Decommissioning Activities. Restoration and Envi–
ronmental Funds
states that where an entity recognizes a decommissioning obligation under IFRSs
and contributes to a fund to segregate assets to pay for the obligation, it should apply lAS 27,
SIC 12, lAS 28 and lAS 31 to determine whether the funds should be consolidated, proportionately
consolidated or accounted for under the equity method.
7. RECENT AMENDMENTS TO lAS 27, EFFECTIVE FOR ANNUAL PERIODS BE-
GINNING ON OR AFTER JULY
1,2009
7.1
On January 10, 2008, the IASB issued lAS 27 (revised 2008) and IFRS 3 (revised 2008).
These Standards resulted from a joint convergence project with the US Financial Accounting Stan–
dards Board (FASB). The FASB issued similar standards in December 2007 (SFAS l4l[R] and
SFAS 161 corresponding to IFRS 3 [revised 2008] and lAS 27 [2008] respectively) .
7.2 An overview of the major amendments in IFRS 3 (revised 2008) is provided in the chapter on
"Business Combinations" (Chapter 35). Since the amendments made by the IASB in the recently
issued lAS 27 (revised 2008) are closely related to IFRS 3 (revised) and this Standard can be ap–
plied earlier (according to the transitional requirements) only if it is adopted earlier together with
IFRS 3 (revised 2008), in order to fully comprehend the implications of the amendments to these
Standards it is advisable to read the summary of changes to IFRS 3 (revised 2008) before reading
the changes to lAS 27 (revised 2008), outlined below.
8. OVERVIEW OF AMENDMENTS IN lAS 27 (REVISED 2008)
8.1
Acquisitions and disposals that do not result in change of control. Changes in the
parent's ownership interest in a subsidiary that will not culminate in a loss of control are accounted
within the shareholders' equity as transactions with owners acting in their capacity as owners. No
gains or loss is recognized on such transactions and goodwill is not remeasured. Any difference in
the "noncontrolling interest" (currently referred to under IFRS as "minority interest") and the fair
value of the consideration paid or received is recognized directly in equity and attributed to the
owners of the parent.
8.2 Loss of control. Control of a subsidiary can be lost by a parent through a sale or distribution,
or through some other transaction or event in which the parent may not even be involved or partici–
pate (for instance, an expropriation or when a subsidiary is placed in an administration or bank–
ruptcy).
8.3 In case of an eventuality of a loss of control, the parent should
(a) Derecognize all assets, liabilities and "noncontrolling interest" at their carrying amounts;
(b) Any retained interest in the former subsidiary (i.e., the one in which control has been lost)
is to be recognized at its fair value at the date when the control is lost;
(c) If the loss of control involves distribution of equity interest to owners of the parent, acting
in their capacity as owners, that distribution is to be recognized at the date of loss of con–
trol;
(d) A gain or loss of control is recognized as the net proceeds, if any, of these transaction; and
(e) Any gain or loss is to be recognized in profit or loss.