IAS 28 BC

International Accounting Standard 28

Investments in Associates and Joint Ventures

January 2022

BASIS FOR CONCLUSIONS

DISSENTING OPINIONS

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IAS 28 BC

CONTENTS
from paragraph

BASIS FOR CONCLUSIONS ON

IAS 28 INVESTMENTS IN ASSOCIATES AND JOINT
VENTURES
INTRODUCTION BC1
The structure of IAS 28 and the Board’s deliberations BC4
SCOPE BC10
SIGNIFICANT INFLUENCE BC15
Potential voting rights BC15
EQUITY METHOD BC16A
Long-term interests in associates and joint ventures BC16A
Effective date and transition BC16H
APPLICATION OF THE EQUITY METHOD BCZ17
Temporary joint control and significant influence (2003 revision) BCZ17
Severe long-term restrictions impairing ability to transfer funds to the
investor (2003 revision) BCZ18
Non-coterminous year-ends (2003 revision) BCZ19
Exemption from applying the equity method: subsidiary of an investment
entity BC19A
Exemption from applying the equity method: measuring an associate or
joint venture at fair value (amendments issued in December 2016) BC19B
Exemptions from applying the equity method: partial use of fair value
measurement of associates BC20
Classification as held for sale BC23
Discontinuing the use of the equity method BC28
Incorporation of SIC-13 BC32
SALE OR CONTRIBUTION OF ASSETS BETWEEN AN INVESTOR AND ITS
ASSOCIATE OR JOINT VENTURE—AMENDMENTS TO IFRS 10 AND IAS 28
(ISSUED IN SEPTEMBER 2014) BC37A
Deferral of the Effective Date of Amendments to IFRS 10 and IAS 28 (issued
in September 2014) BC37J
Recognition of losses (2003 revision) BCZ38
Impairment losses (2008 amendment) BCZ42
Retaining the fair value measurement applied by an associate or joint
venture that is an investment entity BC46A
EFFECTIVE DATE AND TRANSITION BC47
GENERAL BC51
Withdrawal of IAS 28 (2003 revision) BC51
Disclosure BC52
Summary of main changes from IAS 28 (2003 revision) BC56
DISSENTING OPINIONS

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Basis for Conclusions on

IAS 28 Investments in Associates and Joint Ventures

This Basis for Conclusions accompanies, but is not part of, IAS 28.

Introduction
BC1 This Basis for Conclusions summarises the International Accounting
Standards Board’s considerations in reaching its conclusions on amending
IAS 28 Investments in Associates in 2011. Individual Board members gave greater
weight to some factors than to others.

BC2 The amendment of IAS 28 resulted from the Board’s project on joint ventures.
When discussing that project, the Board decided to incorporate the
accounting for joint ventures into IAS 28 because the equity method is
applicable to both joint ventures and associates.

BC3 As a result, the title of IAS 28 was changed to Investments in Associates and Joint
Ventures. Because the Board’s intention was not to reconsider the fundamental
approach to the accounting for investments in associates established by
IAS 28, the Board has incorporated into its Basis for Conclusions on IAS 28
material from the Basis for Conclusions on IAS 28 (as revised in 2003) that the
Board has not reconsidered.

The structure of IAS 28 and the Board’s deliberations

BC4 IAS 28 as amended in 2011 superseded IAS 28 (as revised in 2003 and amended
in 2010). As stated in paragraph BC3, in amending IAS 28, the Board did not
reconsider all the Standard’s requirements. The requirements in paragraphs
5–11, 15, 22–23, 25–28 and 32–43 relate to the assessment of significant
influence and to the equity method and its application, and paragraphs 12–14
relate to the accounting for potential voting rights. With the exception of the
Board’s decision to incorporate the accounting for joint ventures into IAS 28,
those paragraphs were carried forward from IAS 28 and from the Guidance on
Implementing IAS 27 Consolidated and Separate Financial Statements, IAS 28
Investments in Associates and IAS 31 Interests in Joint Ventures that was withdrawn
when IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and
IAS 28 (as amended in 2011) were issued. As a result, those paragraphs were
not reconsidered by the Board.

BC5 When revised in 2003 IAS 28 was accompanied by a Basis for Conclusions
summarising the considerations of the Board, as constituted at the time, in
reaching its conclusions. That Basis for Conclusions was subsequently updated
to reflect amendments to the Standard.

BC6 The Board has incorporated into its Basis for Conclusions on IAS 28 (as
amended in 2011) material from the previous Basis for Conclusions because it
discusses matters that the Board has not reconsidered. That material is
contained in paragraphs denoted by numbers with the prefix BCZ. In those
paragraphs cross-references have been updated accordingly and minor
necessary editorial changes have been made.

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BC7 One Board member dissented from an amendment to IAS 28 issued in May
2008, which has been carried forward to IAS 28 (as amended in 2011). His
dissenting opinion is also set out after this Basis for Conclusions.

BC8 The requirements in paragraphs 2, 16–21, 24 and 29–31 relate to matters

addressed within the joint ventures project that led to amendments to IAS 28.
Paragraphs describing the Board’s considerations in reaching its conclusions
on IAS 28 are numbered with the prefix BC.

BC9 As part of its project on consolidation, the Board is examining how an

investment entity accounts for its interests in subsidiaries, joint ventures and
associates. The outcome might affect how organisations such as venture
capital organisations, or mutual funds, unit trusts and similar entities account
for their interests in joint ventures and associates. The Board expects to
publish later in 2011 an exposure draft on investment entities.1,2

Scope
BC10 During its redeliberation of the exposure draft ED 9 Joint Arrangements, the
Board reconsidered the scope exception of IAS 31 that had also been proposed
in ED 9. The Board concluded that the scope exception in ED 9 for interests in
joint ventures held by venture capital organisations, or mutual funds, unit
trusts and similar entities, including investment-linked insurance funds, that
are measured at fair value through profit or loss in accordance with IFRS 9
Financial Instruments is more appropriately characterised as a measurement
exemption, and not as a scope exception.

BC11 The Board observed that IAS 28 had a similar scope exception for investments
in associates held by venture capital organisations, or mutual funds, unit
trusts and similar entities, including investment-linked insurance funds, that
are measured at fair value through profit or loss in accordance with IFRS 9.

BC12 The Board observed that the scope exception in ED 9 and IAS 28 related not to
the fact that these arrangements do not have the characteristics of joint
arrangements or those investments are not associates, but to the fact that for
investments held by venture capital organisations, or mutual funds, unit
trusts and similar entities including investment-linked insurance funds, fair
value measurement provides more useful information for users of the
financial statements than would application of the equity method.

1 In October 2012 the Board issued Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27),
which required investment entities, as defined in IFRS 10 Consolidated Financial Statements, to
measure their investments in subsidiaries, other than those providing investment-related
services or activities, at fair value through profit or loss. The amendments did not introduce any
new accounting requirements for investments in associates or joint ventures.
2 In December 2014, the IASB issued Investment Entities: Applying the Consolidation Exception
(Amendments to IFRS 10, IFRS 12 and IAS 28). The amendments introduced relief to permit a
non-investment entity investor in an associate or joint venture that is an investment entity to
retain the fair value through profit or loss measurement applied by the associate or joint venture
to its subsidiaries (see paragraphs BC46A–BC46G).

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BC13 Accordingly, the Board decided to maintain the option that permits venture
capital organisations, or mutual funds, unit trusts and similar entities
including investment-linked insurance funds to measure their interests in
joint ventures and associates at fair value through profit or loss in accordance
with IFRS 9, but clarified that this is an exemption from the requirement to
measure interests in joint ventures and associates using the equity method,
rather than an exception to the scope of IAS 28 for the accounting for joint
ventures and associates held by those entities.

BC14 As a result of that decision and of the decision to incorporate the accounting
for joint ventures into IAS 28, the Board decided that IAS 28 should be applied
to the accounting for investments held by all entities that have joint control
of, or significant influence over, an investee.

Significant influence

Potential voting rights

BC15 In its deliberation of the amendments to IAS 28, the Board considered
whether the requirements now in paragraphs 7–9 of IAS 28 regarding
potential voting rights when assessing significant influence should be changed
to be consistent with the requirements developed in the consolidation project.

BC16 The Board observed that the definition of significant influence in IAS 28 (ie
‘the power to participate in the financial and operating policy decisions of the
investee but is not control or joint control of those policies’) was related to the
definition of control as it was defined in IAS 27. The Board had not considered
the definition of significant influence when it amended IAS 28 and concluded
that it would not be appropriate to change one element of significant
influence in isolation. Any such consideration should be done as part of a
wider review of the accounting for associates.

Equity method

Long-term interests in associates and joint ventures

BC16A The Board received a submission relating to long-term interests in an associate
or joint venture that, in substance, form part of the net investment in the
associate or joint venture (long-term interests). The submission asked whether
long-term interests are within the scope of IFRS 9 and, if so, whether the
impairment requirements in IFRS 9 apply to such long-term interests.

BC16B In considering the submission, the Board and the IFRS Interpretations
Committee discussed the accounting for long-term interests applying the
requirements in IFRS 9 and IAS 28, without reconsidering those requirements.
The submission was narrowly and clearly defined, and both bodies concluded
they could respond to the submission most efficiently by considering only the
submission received. Any reconsideration of the accounting for long-term
interests could not be undertaken as a narrow-scope project and would be
likely to involve reconsideration of the equity method, a topic included in the
Board’s pipeline of future research projects. Consequently, the Board limited

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the amendments to clarifying its intentions when it issued the requirements

in IFRS 9 and IAS 28.

BC16C The Board concluded that with respect to interests in an associate or joint
venture, paragraph 2.1(a) of IFRS 9 excludes from the scope of IFRS 9 only
interests to which the equity method is applied. Accordingly, the scope
exclusion in that paragraph does not include long-term interests (as described
in paragraph 38 of IAS 28). In reaching this conclusion, the Board noted that
IAS 28 mentions long-term interests and the net investment, which includes
long-term interests, only in the context of recognising losses of an associate or
joint venture and impairment of the net investment in the associate or joint
venture. IAS 28 does not specify requirements for other aspects of recognising
or measuring long-term interests. Thus, long-term interests are not accounted
for in accordance with IAS 28, as envisaged in paragraph 2.1(a) of IFRS 9. The
Board also noted that paragraph 14 of IAS 28 states that ‘IFRS 9 Financial
Instruments does not apply to interests in associates and joint ventures that are
accounted for using the equity method’.

BC16D The Board clarified in paragraph 14A of IAS 28 that IFRS 9, including its
impairment requirements, applies to long-term interests. The Board also
deleted paragraph 41 as part of the amendments. That paragraph had merely
reiterated requirements in IFRS 9, and had created confusion about the
accounting for long-term interests.

BC16E Respondents to the Board’s Exposure Draft on long-term interests suggested

that it further clarify how the requirements in IAS 28 and IFRS 9 apply to
long-term interests because, in the respondents’ view, the benefits of the
amendments would be limited without such clarifications. Respondents also
suggested including an illustrative example.

BC16F In response, the Board clarified that an entity applies IFRS 9, rather than
IAS 28, in accounting for long-term interests. Thus, when applying IFRS 9, it
does not take account of any losses of the associate or joint venture, or any
impairment losses on the net investment, recognised as adjustments to the
net investment in the associate or joint venture applying IAS 28.

BC16G In addition, at the same time it issued the amendments, the Board published
an example that illustrates how entities apply the requirements in IAS 28 and
IFRS 9 with respect to long-term interests.

Effective date and transition

BC16H The Board proposed to align the effective date of the amendments with the
effective date of IFRS 9—annual reporting periods beginning on or after
1 January 2018. Some respondents said an effective date of 1 January 2018
would not allow sufficient time to implement the amendments. In particular,
the respondents mentioned entities in jurisdictions that have a translation or
endorsement process for IFRS Standards.

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BC16I In the light of these concerns, the Board set an effective date of annual
reporting periods beginning on or after 1 January 2019, with earlier
application permitted. The Board noted that if an entity elects to apply the
amendments when it first applies IFRS 9, then it would benefit from applying
the transition requirements in IFRS 9 to long-term interests.

BC16J Considering the effective date of 1 January 2019 and the requirement to apply
the amendments retrospectively, the Board also provided transition
requirements similar to those in IFRS 9 for entities that apply the
amendments after they first apply IFRS 9. This is because retrospective
application may not have been possible without the use of hindsight. When
the Board developed IFRS 9, it provided transition requirements for scenarios
in which it would have been impracticable for an entity to apply particular
requirements retrospectively. Consequently, the Board provided similar
transition requirements in the amendments to IAS 28 for long-term interests
because the effect of the amendments might be that an entity applies IFRS 9
for the first time to those interests. Accordingly, for example, such an entity
would assess its business model for such long-term interests based on the facts
and circumstances that exist on the date it first applies the amendments (for
example, 1 January 2019 for an entity applying the amendments from that
date).

BC16K The Board noted that at the date of initial application of the amendments an
entity would be able to use these transition requirements only for long-term
interests and not for other financial instruments to which the entity has
already applied IFRS 9. Accordingly, for example, an entity is not permitted (or
required) to reconsider any of its fair value option elections for financial
instruments to which the entity has already applied IFRS 9.

BC16L The Board also decided to provide relief from restating prior periods for
entities electing, in accordance with IFRS 4 Insurance Contracts, to apply the
temporary exemption from IFRS 9. The Board observed that the effect of the
amendments for such entities might be that they apply IAS 39 for the first
time to long-term interests.

Application of the equity method

Temporary joint control and significant influence (2003

revision)
BCZ17 In IFRS 5 Non-current Assets Held for Sale and Discontinued Operations the Board
decided not to exempt an entity from applying the equity method for
accounting for its investments in joint ventures and associates when joint
control of, or significant influence over, an investee is intended to be
temporary.

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Severe long-term restrictions impairing ability to transfer

funds to the investor (2003 revision)
BCZ18 The Board decided not to exempt an entity from applying the equity method
for accounting for its investments in joint ventures or associates when severe
long-term restrictions impaired a joint venture or an associate’s ability to
transfer funds to the investor. It did so because such circumstances may not
preclude the entity’s joint control of, or significant influence over, the joint
venture or the associate. The Board decided that an entity should, when
assessing its ability to exercise joint control of, or significant influence over,
an investee, consider restrictions on the transfer of funds from the joint
venture or from the associate to the entity. In themselves, such restrictions do
not preclude the existence of joint control or significant influence.

Non-coterminous year-ends (2003 revision)

BCZ19 The exposure draft that preceded the revision of IAS 28 in 2003 proposed to
limit to three months any difference between the reporting dates of an entity
and its associate or its joint venture when applying the equity method. Some
respondents to that exposure draft believed that it could be impracticable for
the entity to prepare financial statements as of the same date when the date
of the entity’s financial statements and those of the associate or joint venture
differ by more than three months. The Board noted that a three-month limit
operates in several jurisdictions and it was concerned that a longer period,
such as six months, would lead to the recognition of stale information.
Therefore, it decided to retain the three-month limit.

Exemption from applying the equity method: subsidiary

of an investment entity
BC19A In December 2014, the Board amended IFRS 10 to confirm that the exemption
from preparing consolidated financial statements set out in paragraph 4(a) of
IFRS 10 is available to a parent entity that is a subsidiary of an investment
entity. The Board also decided to amend paragraph 17 of IAS 28 for the same
reasons. Paragraph 17 of IAS 28 uses the same criteria as paragraph 4(a) of
IFRS 10 to provide an exemption from applying the equity method for entities
that are subsidiaries and that hold interests in associates and joint ventures.

Exemption from applying the equity method: measuring

an associate or joint venture at fair value (amendments
issued in December 2016)
BC19B When an investment in an associate or joint venture is held by, or is held
indirectly through, a venture capital organisation, or a mutual fund, unit trust
and similar entities including investment-linked insurance funds, the entity
may elect, in accordance with paragraph 18 of IAS 28, to measure that
investment at fair value through profit or loss. The Board received a request to
clarify whether the entity is able to choose between applying the equity
method or measuring the investment at fair value for each investment, or
whether instead the entity applies the same accounting to all of its
investments in associates and joint ventures.

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BC19C The Board noted that, before it was revised in 2011, IAS 28 Investments in
Associates permitted a venture capital organisation, or a mutual fund, unit
trust and similar entities to elect to measure investments in an associate at
fair value through profit or loss separately for each associate. However, after
the revision, it had become less clear whether such an election was still
available to those entities. The Board noted that it did not consider changing
these requirements when revising IAS 28 in 2011, and any lack of clarity that
arose as a consequence of the amendments in 2011 was unintentional.

BC19D Accordingly, in Annual Improvements to IFRS Standards 2014–2016 Cycle, the

Board amended paragraph 18 of IAS 28 to clarify that a venture capital
organisation, or a mutual fund, unit trust and similar entities may elect, at
initial recognition, to measure investments in an associate or joint venture at
fair value through profit or loss separately for each associate or joint venture.

BC19E In addition, paragraph 36A of IAS 28 permits an entity that is not an

investment entity to retain the fair value measurement applied by its
associates and joint ventures (that are investment entities) when applying the
equity method. The Board also decided to amend that paragraph to clarify that
this choice is available, at initial recognition, for each investment entity
associate or joint venture.

BC19F Some respondents to the Board’s proposals said that it was not clear whether,
in its separate financial statements, a venture capital organisation or a mutual
fund, unit trust and similar entities:

(a) could choose to measure investments in an associate or joint venture

at fair value through profit or loss for each associate or joint venture;
or

(b) would be required to measure all such investments at fair value

through profit or loss, on the grounds that paragraph 10 of IAS 27
Separate Financial Statements requires the same accounting for each
category of investments and paragraph 11 of IAS 27 requires
investments measured at fair value in accordance with IAS 28 to be
measured at fair value in separate financial statements. If this were to
be the case, those respondents note that such an outcome would
appear to be inconsistent with the objective of the amendments to
IAS 28.

BC19G The Board noted that ‘category’ is not defined in IFRS Standards, but is used in
a number of Standards. For example, IFRS 7 Financial Instruments: Disclosures
uses ‘category’ to refer to groupings of financial assets and financial liabilities
that are measured in different ways—for example, financial assets measured
at fair value through profit or loss is one category of financial asset and
financial assets measured at amortised cost is another category of financial
asset. The Board observed that paragraph 10 of IAS 27 should not be read to
mean that, in all circumstances, all investments in associates are one
‘category’ of investment and all investments in joint ventures are one
‘category’ of investment. The issue raised by respondents arises only if the
requirement in paragraph 10 of IAS 27 were to be interpreted in that way. An
entity that elects to measure some associates or joint ventures at fair value

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through profit or loss in accordance with paragraph 18 of IAS 28 would retain

that measurement basis for those associates and joint ventures in its separate
financial statements, as required by paragraph 11 of IAS 27. The entity could
then choose to measure its remaining associates and joint ventures either at
cost, in accordance with IFRS 9 or using the equity method in accordance with
paragraph 10 of IAS 27.

BC19H In response to the Board’s proposal to apply the amendments retrospectively,

some respondents questioned whether the information needed would be
available without the use of hindsight. Others suggested providing transition
relief for entities that previously interpreted IAS 28 as requiring the same
accounting for all investments in associates and joint ventures. They
suggested that, when first applying the amendments, such entities should be
allowed to elect to measure each existing investment either at fair value
through profit or loss or using the equity method.

BC19I The Board decided to retain retrospective application of the amendments

because the amendments are expected to affect only a narrow population of
entities, and such entities (being venture capital organisations, or mutual
funds, unit trusts and similar entities) would typically be expected to have fair
value information for their investments for management purposes. In
addition, if the costs of applying the amendments retrospectively are
considered excessive, an entity can choose not to change any of its previous
decisions regarding measurement. This is because retrospective application of
a choice of measurement for each associate or joint venture, in effect, means
that an entity is not required to reassess its previous decisions. The Board also
noted that retrospective application in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors means that an entity will not
use hindsight when first applying the amendments—paragraph 53 of IAS 8
states that hindsight should not be used when applying a new accounting
policy to a prior period, either in making assumptions about what
management’s intentions would have been in a prior period or in estimating
the amounts recognised, measured and disclosed in a prior period.

Exemptions from applying the equity method: partial use

of fair value measurement of associates
BC20 The Board received a request to clarify whether different measurement bases
can be applied to portions of an investment in an associate when part of the
investment is not accounted for using the equity method in accordance with
paragraph 18 of IAS 28, but it is instead measured at fair value through profit
or loss in accordance with IFRS 9. The Board initially deliberated this
amendment to IAS 28 as part of the Improvements to IFRSs issued in April 2010;
however, at its meeting in February 2010 the Board decided to address this
issue within the joint ventures project.

BC21 The Board noted that two views exist with respect to measurement. The first
view identifies all direct and indirect interests held in the associate either by
the parent or through any of its subsidiaries, and then applies IAS 28 to the
entire investment in the associate. In accordance with this view, there is only
one investment in the associate and it should be accounted for as a single unit.

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The second view identifies all direct and indirect interests held in an associate,
but then allows the use of the measurement exemption to portions of an
investment in an associate if the portion is held by a venture capital
organisation, or a mutual fund, unit trust and similar entities including
investment-linked insurance funds, regardless of whether those entities have
significant influence over their portion of the investment in the associate. The
Board agreed with the second view and therefore amended IAS 28. The Board
decided that equivalent guidance on the partial use of fair value for the
measurement of investments in joint ventures should not be provided because
the Board thought that such events would be unlikely in practice.

BC22 The Board also discussed whether the partial use of fair value should be
allowed only in the case of venture capital organisations, or mutual funds,
unit trusts and similar entities including investment-linked insurance funds,
that have designated their portion of the investment in the associate at fair
value through profit or loss in their own financial statements. The Board
noted that several situations might arise in which those entities do not
measure their portion of the investment in the associate at fair value through
profit or loss. In those situations, however, from the group’s perspective, the
appropriate determination of the business purpose would lead to the
measurement of this portion of the investment in the associate at fair value
through profit or loss in the consolidated financial statements. Consequently,
the Board decided that an entity should be able to measure a portion of an
investment in an associate held by a venture capital organisation, or a mutual
fund, unit trust and similar entities including investment-linked insurance
funds, at fair value through profit or loss regardless of whether this portion of
the investment is measured at fair value through profit or loss in those
entities’ financial statements.

Classification as held for sale

BC23 ED 9 proposed that an entity should account for an interest in a joint venture
that is classified as held for sale in accordance with IFRS 5.

BC24 During its redeliberation of ED 9 the Board noted that the exposure draft
Improvements to IFRSs published in August 2009 had proposed to amend IFRS 5
so as to require an entity to classify as held for sale its interest in an associate,
or in a jointly controlled entity, when it is committed to a sale plan involving
loss of significant influence or loss of joint control. Those proposals aimed to
clarify that all the interest (‘the whole interest’) an entity had in an associate
or a joint venture had to be classified as held for sale if the entity was
committed to a sale plan involving loss of, significant influence over, or joint
control of that interest.

BC25 The Board observed that those proposals were not aligned with the decisions
made during the Board’s redeliberation of ED 9 to remove all descriptions that
associated the loss of joint control and the loss of significant influence with
the term ‘significant economic event’ as introduced in the second phase of the
Board’s project on business combinations (see paragraphs BC28–BC31).

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BC26 The Board decided that classifying an interest as held for sale should be on the
basis of whether the intended disposal meets the criteria for classification as
held for sale in accordance with IFRS 5, rather than on whether the entity had
lost joint control of, or significant influence over, that interest. As a result, the
Board concluded that when the disposal of an interest, or a portion of an
interest, in a joint venture or an associate fulfilled the criteria for
classification as held for sale in accordance with IFRS 5, an entity should
classify the whole interest, or a portion of the interest, as held for sale.

BC27 The Board decided that, in the case of a partial disposal, an entity should
maintain the use of the equity method for the retained interest in the joint
venture or associate until the portion classified as held for sale is finally
disposed of. The Board reasoned that even if the entity has the intention of
selling a portion of an interest in an associate or a joint venture, until it does
so it still has significant influence over, or joint control of, that investee. After
the disposal, an entity should measure the retained interest in the joint
venture or associate in accordance with IFRS 9 or in accordance with IAS 28 if
the entity still has significant influence over, or joint control of, the retained
interest.

Discontinuing the use of the equity method

BC28 During its redeliberation of ED 9, the Board reconsidered whether its decision
in the second phase of the business combinations project to characterise loss
of joint control or loss of significant influence as a significant economic event
(ie in the same way that loss of control is characterised as a significant
economic event) was appropriate. If it were, the Board thought that the entity
should be required to recalibrate the accounting as required by IFRS 10.
However, the Board concluded that, although significant, the events are
fundamentally different. In the case of loss of control, the cessation of the
parent-subsidiary relationship results in the derecognition of assets and
liabilities because the composition of the group changes. If joint control or
significant influence is lost the composition of the group is unaffected.

BC29 The Board also noted that retaining the characterisation of significant
economic event in the case of loss of joint control or significant influence
when the retained interest is a financial asset is unnecessary. IFRS 9 already
requires that in such cases the retained interest (ie a financial asset) must be
measured at fair value.

BC30 In the case of loss of joint control when significant influence is maintained,
the Board acknowledged that the investor-investee relationship changes and,
consequently, so does the nature of the investment. However, in this instance,
both investments (ie the joint venture and the associate) continue to be
measured using the equity method. Considering that there is neither a change
in the group boundaries nor a change in the measurement requirements, the
Board concluded that losing joint control and retaining significant influence is
not an event that warrants remeasurement of the retained interest at fair
value.

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BC31 Consequently, the Board removed all descriptions that characterise loss of
joint control or significant influence as a significant economic event as
introduced in the second phase of the Board’s project on business
combinations.

Incorporation of SIC-13
BC32 In the joint ventures project, the Board decided to extend the requirements
and guidance in IAS 28 for the accounting for ‘downstream’ and ‘upstream’
transactions between an entity and its associate to the accounting for
transactions between an entity and its joint venture.

BC33 In ED 9, the Board proposed to incorporate into the standard on joint

arrangements the consensus of SIC-13 Jointly Controlled Entities—Non-Monetary
Contributions by Venturers. Because the Board relocated all the requirements for
the accounting for joint ventures into IAS 28, the Board incorporated the
consensus of SIC-13 into IAS 28 and extended it to associates.

BC34 The Board noted that the consensus of SIC-13 regarding non-monetary
contributions made by a venturer3 to a joint venture is consistent with IAS 28,
except for the following aspect. SIC-13 established three exceptions for the
recognition of gains or losses attributable to the equity interests of the other
parties. In response to comments raised by some respondents to ED 9, the
Board redeliberated the need to incorporate into IAS 28 the exceptions
included in SIC-13 for the recognition by an entity of the portion of a gain or
loss attributable to the interests of other unrelated investors in the investee.

BC35 The Board concluded that only when the transaction lacks commercial
substance should there be an exception for the recognition of gains or losses
to be carried forward from the consensus of SIC-13 into IAS 28, because the
other two exceptions in SIC-13 (ie ‘the significant risks and rewards of
ownership of the contributed non-monetary asset(s) have not been transferred
to the jointly controlled entity’ and ‘the gain or loss on the non-monetary
contribution cannot be measured reliably’) either relate to requirements that
are not aligned with the principles and requirements of IFRS 11 or relate to a
criterion for the recognition of gain or losses (ie ‘reliability of measurement’)
that is already included in the Conceptual Framework for Financial Reporting.4

BCZ36 To the extent that the entity also receives monetary or non-monetary assets
dissimilar to the assets contributed in addition to equity interests in the
investee, the realisation of which is not dependent on the future cash flows of
the investee, the earnings process is complete. Accordingly, an entity should
recognise in full in profit or loss the portion of the gain or loss on the non-
monetary contribution relating to the monetary or non-monetary assets
received.

3 IFRS 11 Joint Arrangements, issued in May 2011, uses the term ‘joint venturers’ to designate parties
that have joint control of a joint venture.
4 The reference is to the Conceptual Framework for Financial Reporting, issued in 2010 and in effect
when the Standard was amended.

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BC37 Additionally, the Board considered whether the requirements in IAS 31 for
recognition of losses when downstream or upstream transactions provide
evidence of a reduction in the net realisable value or impairment loss of the
assets transacted or contributed were still relevant and decided to bring them
forward to IAS 28.

Sale or contribution of assets between an investor and its

associate or joint venture—amendments to IFRS 10 and IAS 28
(issued in September 2014)
BC37A The IFRS Interpretations Committee received a request to clarify whether a
business meets the definition of a ‘non-monetary asset’. The question was
asked within the context of identifying whether the requirements of SIC-135
and IAS 28 (as revised in 2011) apply when a business is contributed to a
jointly controlled entity (as defined in IAS 316), a joint venture (as defined in
IFRS 11) or an associate, in exchange for an equity interest in that jointly
controlled entity, joint venture or associate. The business may be contributed
either when the jointly controlled entity, joint venture or associate is
established or thereafter.

BC37B The Board noted that this matter is related to the issues arising from the
acknowledged inconsistency between the requirements in IAS 27 (as revised in
2008) and SIC-13, when accounting for the contribution of a subsidiary to a
jointly controlled entity, joint venture or associate (resulting in the loss of
control of the subsidiary). In accordance with SIC-13, the amount of the gain
or loss recognised resulting from the contribution of a non-monetary asset to
a jointly controlled entity in exchange for an equity interest in that jointly
controlled entity is restricted to the extent of the interests attributable to the
unrelated investors in the jointly controlled entity. However, IAS 27 (as revised
in 2008) requires full profit or loss recognition on the loss of control of a
subsidiary.

BC37C This inconsistency between IAS 27 (as revised in 2008) and SIC-13remained
after IFRS 10 replaced IAS 27 (as revised in 2008) and SIC-13was withdrawn.
The requirements in IFRS 10 on the accounting for the loss of control of a
subsidiary are similar to the requirements in IAS 27 (as revised in 2008). The
requirements in SIC-13are incorporated into paragraphs 28 and 30 of IAS 28
(as amended in 2011) and apply to the sale or contribution of assets between
an investor and its associate or joint venture. Because IAS 27 (as revised in
2008) and SIC-13have been superseded at the time when the amendments
become effective, the Board decided to amend only IFRS 10 and IAS 28 (as
amended in 2011).

BC37D In dealing with the conflict between the requirements in IFRS 10 and IAS 28
(as amended in 2011), the Board was concerned that the existing requirements
could result in the accounting for a transaction being driven by its form
rather than by its substance. For example, different accounting might be

5 SIC-13 has been withdrawn. The requirements in SIC-13are incorporated into IAS 28 (as amended
in 2011).
6 IAS 31 was superseded by IFRS 11 Joint Arrangements issued in May 2011.

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applied to a transaction involving the same underlying assets depending on

whether those assets were:

(a) transferred in a transaction that is structured as a sale of assets or as a

sale of the entity that holds the assets; or

(b) sold in exchange for cash or contributed in exchange for an equity

interest.

BC37E The Board concluded that:

(a) the accounting for the loss of control of a business, as defined in

IFRS 3, should be consistent with the conclusions in IFRS 3; and

(b) a full gain or loss should therefore be recognised on the loss of control
of a business, regardless of whether that business is housed in a
subsidiary or not.

BC37F Because assets that do not constitute a business were not part of the Business
Combinations project, the Board concluded that:

(a) the current requirements in IAS 28 (as amended in 2011) for the partial
gain or loss recognition for transactions between an investor and its
associate or joint venture should only apply to the gain or loss
resulting from the sale or contribution of assets that do not constitute
a business; and

(b) IFRS 10 should be amended so that a partial gain or loss is recognised

in accounting for the loss of control of a subsidiary that does not
constitute a business as a result of a transaction between an investor
and its associate or joint venture.

BC37G The Board discussed whether all sales and contributions (including the sale or
contribution of assets that do not constitute a business) should be consistent
with IFRS 3. Although it considered this alternative to be the most robust
from a conceptual point of view, it noted that this would require addressing
multiple cross-cutting issues. Because of concerns that the cross-cutting issues
could not be addressed on a timely basis the conclusions described in
paragraphs BC37E–BC37F were considered the best way to address this issue.

BC37H The Board decided that both ‘upstream’ and ‘downstream’ transactions should
be affected by the amendments to IFRS 10 and IAS 28 (as amended in 2011).
The Board noted that if assets that constitute a business were sold by an
associate or a joint venture to the investor (in an upstream transaction), with
the result that the investor takes control of that business, the investor would
account for this transaction as a business combination in accordance with
IFRS 3.

BC37I The Board decided that the amendments to IFRS 10 and IAS 28 (as amended in
2011) should apply prospectively to transactions that occur in annual periods
beginning on or after the date that the amendments become effective. The
Board observed that the requirements in IAS 27 (as revised in 2008) for the loss
of control of a subsidiary (see paragraph 45(c) of IAS 27 as revised in 2008)
were applied prospectively. The Board also noted that transactions dealing

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with the loss of control of a subsidiary or a business between an investor and

its associate or joint venture are discrete non-recurring transactions.
Consequently, the Board concluded that the benefits of comparative
information would not exceed the cost of providing it. The Board also decided
to allow entities to early apply the amendments to IFRS 10 and IAS 28 (as
amended in 2011).

Deferral of the Effective Date of Amendments to IFRS 10

and IAS 28 (issued in September 2014)
BC37J In December 2015, the Board decided to defer indefinitely the effective date of
the amendments made to IFRS 10 and IAS 28 in September 2014. See
paragraphs BC190L–BC190O of the Basis for Conclusions on IFRS 10
Consolidated Financial Statements.

Recognition of losses (2003 revision)

BCZ38 The 2000 version of IAS 28 and SIC-20 Equity Accounting Method—Recognition of
Losses restricted application of the equity method when, in accounting for the
entity’s share of losses, the carrying amount of the investment is reduced to
zero.

BCZ39 The Board decided that the base to be reduced to zero should be broader than
residual equity interests and should also include other non-equity interests
that are in substance part of the net investment in the associate or joint
venture, such as long-term receivables. Therefore, the Board decided to
withdraw SIC-20.

BCZ40 The Board also noted that if non-equity investments are not included in the
base to be reduced to zero, an entity could restructure its investment to fund
the majority in non-equity investments to avoid recognising the losses of the
associate or joint venture under the equity method.

BCZ41 In widening the base against which losses are to be recognised, the Board also
clarified the application of the impairment provisions of IAS 39 Financial
Instruments: Recognition and Measurement7 to the financial assets that form part
of the net investment.

Impairment losses (2008 amendment)

BCZ42 In 2008 the Board identified unclear guidance in IAS 28 regarding the extent
to which an impairment reversal should be recognised as an adjustment to the
carrying amount of an investment in an associate or in a joint venture.

BCZ43 The Board noted that applying the equity method involves adjusting the
entity’s share of the impairment loss recognised by the associate or joint
venture on assets such as goodwill or property, plant and equipment to take
account of the acquisition date fair values of those assets. The Board proposed
in the exposure draft Improvements to International Financial Reporting Standards
published in October 2007 that an additional impairment recognised by the

7 IFRS 9 Financial Instruments replaced IAS 39. IFRS 9 applies to all items that previously were within
the scope of IAS 39.

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entity, after applying the equity method, should not be allocated to any asset,
including goodwill, that forms part of the carrying amount of the investment.
Therefore, such an impairment should be reversed in a subsequent period to
the extent that the recoverable amount of the investment increases.

BCZ44 Some respondents to the exposure draft expressed the view that the proposed
amendment was not consistent with IAS 39 (regarding reversal of an
impairment loss on an available-for-sale equity instrument8), or with IAS 36
Impairment of Assets (regarding the allocation of an impairment loss to goodwill
and any reversal of an impairment loss relating to goodwill).

BCZ45 In its redeliberations, the Board affirmed its previous decisions but, in
response to the comments made, decided to clarify the reasons for the
amendments. The Board decided that an entity should not allocate an
impairment loss to any asset that forms part of the carrying amount of the
investment in the associate or joint venture because the investment is the only
asset that the entity controls and recognises.

BCZ46 The Board also decided that any reversal of this impairment loss should be
recognised as an adjustment to the investment in the associate or joint
venture to the extent that the recoverable amount of the investment
increases. This requirement is consistent with IAS 36, which permits the
reversal of impairment losses for assets other than goodwill. The Board did
not propose to align the requirements for the reversal of an impairment loss
with those in IAS 399 relating to equity instruments, because an entity
recognises an impairment loss on an investment in an associate or joint
venture in accordance with IAS 36, rather than in accordance with IAS 39.

Retaining the fair value measurement applied by an

associate or joint venture that is an investment entity
BC46A In October 2012, the Board issued Investment Entities (Amendments to IFRS 10,
IFRS 12 and IAS 27), which required investment entities, as defined in IFRS 10,
to measure most investments in subsidiaries at fair value through profit or
loss. The amendments did not introduce any new accounting requirements for
investments in associates or joint ventures. This is because paragraphs 18–19
of IAS 28 already allowed an investment entity to measure its investments in
associates and joint ventures at fair value through profit or loss in accordance
with IFRS 9. A wider range of entities, including venture capital organisations,
or mutual funds, unit trusts and similar entities including investment-linked
insurance funds, may also elect to measure their investments in associates and
joint ventures in the same way.

BC46B Paragraph 33 of IFRS 10 requires a non-investment entity parent of an

investment entity to consolidate all entities that it controls, including those
controlled through an investment entity subsidiary. This is consistent with
the proposal contained in the Exposure Draft Investment Entities (the ‘Investment
Entities ED’), which was published in August 2011. Some respondents to the

8 IFRS 9 Financial Instruments eliminated the category of available-for-sale financial assets.

9 IFRS 9 Financial Instruments replaced IAS 39. IFRS 9 applies to all items that previously were within
the scope of IAS 39.

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Investment Entities ED noted that this seemed inconsistent with paragraphs

18–19 of IAS 28, which allow a wider group of entities than only investment
entities to measure their investments in associates and joint ventures at fair
value through profit or loss. The Board acknowledged this inconsistency, and
explained its reasons for not amending IAS 28 in line with IFRS 10, in
paragraph BC283 of IFRS 10.

BC46C Subsequently, the IFRS Interpretations Committee (the ‘Interpretations

Committee’) received a request to clarify whether an entity that is not an
investment entity should, when applying the equity method of accounting for
its investment in an associate or joint venture that is an investment entity,
retain the fair value measurement that is applied by that associate or joint
venture to its subsidiaries or, instead, ‘unwind’ that treatment and apply
consolidation procedures. Members of the Interpretations Committee had
mixed views on the matter and, because of the need to provide clarity before
the end of 2014, the matter was passed to the Board.

BC46D The Board noted that the scope of the amendment in the Investment Entities ED
was restricted to providing an exception to the consolidation requirements for
investment entity parents. This exception reflects the unique business model
of an investment entity, for which fair value information is more relevant
than consolidation. This unique business model is not applicable to a non-
investment entity parent. Consequently, paragraph 33 of IFRS 10 requires a
non-investment entity parent of an investment entity to consolidate all
entities that it controls, both directly and indirectly through an investment
entity. This requires the non-investment entity parent to unwind the fair
value through profit or loss measurement used by its investment entity
subsidiaries for indirectly held subsidiaries.

BC46E The Board also noted that paragraphs 35–36 of IAS 28, which require the use
of uniform accounting policies, would apply for a non-investment entity
investor and its investment entity associates or joint ventures. This would
mean that the subsidiaries of those investment entity associates and joint
ventures should be consolidated into the financial statements of those
associates and joint ventures prior to the equity method being applied. The
Board noted that this is conceptually consistent with the requirement in
IFRS 10 for a non-investment entity parent to consolidate subsidiaries held
through an investment entity subsidiary.

BC46F However, some Board members raised concerns about the potentially
significant practical difficulties or additional costs that may arise for an entity
in unwinding the fair value through profit or loss measurement applied by an
investment entity associate or joint venture for their interests in subsidiaries.
Some Board members noted that the degree of practical difficulty is different
depending on whether the investee is an associate or joint venture. In
addition, some Board members noted the structuring risks highlighted in
paragraph BC280 of IFRS 10 and noted that an investor’s ability to achieve
different accounting outcomes by holding investments through an investment
entity investee is different depending on whether the investee is an associate
or a joint venture. Consequently, in the Exposure Draft Investment Entities:
Applying the Consolidation Exception (Proposed amendments to IFRS 10 and

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IAS 28) (the ‘Consolidation Exception ED’), which was published in June 2014, the
Board proposed to provide relief to non-investment entity investors for their
interests in investment entity associates, but not for their interests in
investment entity joint ventures.

BC46G The practicality and cost concerns were noted by the majority of respondents
to the Consolidation Exception ED. However, the majority of respondents
disagreed with the proposal to limit the relief to interests in investment entity
associates, noting that the practicality and cost issues also applied to interests
in joint ventures. In addition, some respondents disagreed with the concerns
about the risk of structuring, noting that the difference between significant
influence and joint control is much smaller than the difference between
control and joint control. Consequently, the Board decided to provide relief to
non-investment entity investors in both investment entity associates and joint
ventures and to retain the consistency in treatment in applying the equity
method to both associates and joint ventures. This relief permits, but does not
require, a non-investment entity investor to retain the fair value through
profit or loss measurement applied by an investment entity associate or joint
venture for their subsidiaries when applying the equity method.

Effective date and transition

BC47 The Board decided to align the effective date for the Standard with the
effective date for IFRS 10, IFRS 11, IFRS 12 Disclosure of Interests in Other Entities
and IAS 27 Separate Financial Statements. When making this decision, the Board
noted that the five IFRSs all deal with the assessment of, and related
accounting and disclosure requirements about, a reporting entity’s special
relationships with other entities (ie when the reporting entity has control or
joint control of, or significant influence over, another entity). As a result, the
Board concluded that applying IAS 28 without also applying the other four
IFRSs could cause unwarranted confusion.

BC48 The Board usually sets an effective date of between twelve and eighteen
months after issuing an IFRS. When deciding the effective date for those
IFRSs, the Board considered the following factors:

(a) the time that many countries require for translation and for
introducing the mandatory requirements into law.

(b) the consolidation project was related to the global financial crisis that
started in 2007 and was accelerated by the Board in response to urgent
requests from the leaders of the G20, the Financial Stability Board,
users of financial statements, regulators and others to improve the
accounting and disclosure of an entity’s ‘off balance sheet’ activities.

(c) the comments received from respondents to the Request for Views
Effective Date and Transition Methods that was published in October 2010
regarding implementation costs, effective date and transition
requirements of the IFRSs to be issued in 2011. Most respondents did
not identify the consolidation and joint arrangements IFRSs as having
a high impact in terms of the time and resources that their

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implementation would require. In addition, only a few respondents

commented that the effective dates of those IFRSs should be aligned
with those of the other IFRSs to be issued in 2011.

BC49 With those factors in mind, the Board decided to require entities to apply the
five IFRSs for annual periods beginning on or after 1 January 2013.

BC50 Most respondents to the Request for Views supported early application of the
IFRSs to be issued in 2011. Respondents stressed that early application was
especially important for first-time adopters in 2011 and 2012. The Board was
persuaded by these arguments and decided to permit early application of
IAS 28 but only if an entity applies it in conjunction with the other IFRSs
(ie IFRS 10, IFRS 11, IFRS 12 and IAS 27 (as amended in 2011)) to avoid a lack of
comparability among financial statements, and for the reasons noted
in paragraph BC47 that triggered the Board’s decision to set the same effective
date for all five IFRSs. Even though an entity should apply the five IFRSs at the
same time, the Board noted that an entity should not be prevented from
providing any information required by IFRS 12 early if by doing so users
gained a better understanding of the entity’s relationships with other entities.

BC50A The Board decided that no specific transition guidance was needed and,
therefore, an entity should apply Investment Entities: Applying the Consolidation
Exception (Amendments to IFRS 10, IFRS 12 and IAS 28) retrospectively in
accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors.

General

Withdrawal of IAS 28 (2003 revision)

BC51 IAS 28 Investments in Associates and Joint Ventures replaces IAS 28 Investments in
Associates (as revised in 2003 and amended in 2010). IAS 28 (as amended in
2011) incorporates the accounting for joint ventures and includes some
amendments discussed by the Board during its redeliberation of the exposure
draft ED 9.

Disclosure
BC52 IAS 28 does not address the disclosure requirements for entities with joint
control of, or significant influence over, an investee. As part of its
redeliberation of ED 9 and ED 10 Consolidated Financial Statements, the Board
identified an opportunity to integrate and make consistent the disclosure
requirements for subsidiaries, joint arrangements, associates and
unconsolidated structured entities, and to present those requirements in a
single IFRS.

BC53 The Board observed that IAS 27, IAS 28 and IAS 31 contained many similar
disclosure requirements. ED 9 had already proposed amendments to the
disclosure requirements for joint ventures and associates to align the
disclosure requirements for those two types of investments more closely. The
Board noted that the majority of respondents agreed with the proposals in

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ED 9 to align the disclosures for joint ventures with the disclosures in IAS 28
for associates.

BC54 As a result, the Board combined the disclosure requirements for interest with
subsidiaries, joint arrangements, associates and unconsolidated structured
entities within a single comprehensive standard, IFRS 12.

BC55 The Basis for Conclusions accompanying IFRS 12 summarises the Board’s
considerations in developing that IFRS, including its review of responses to the
disclosure proposals in ED 9. Accordingly, IAS 28 does not include disclosure
requirements and this Basis for Conclusions does not incorporate the Board’s
considerations of responses to the proposed disclosure requirements in ED 9.

Summary of main changes from IAS 28 (2003 revision)

BC56 The main changes from the previous version of IAS 28 are as follows:

(a) The accounting for joint ventures has been incorporated into the
Standard.

(b) The scope exception for venture capital organisations, or mutual

funds, unit trusts and similar entities, including investment-linked
insurance funds has been eliminated and has been characterised as a
measurement exemption from the requirement to measure
investments in associates and joint ventures in using the equity
method.

(c) IAS 28 now permits an entity that has an investment in an associate, a

portion of which is held indirectly through venture capital
organisations, or mutual funds, unit trusts and similar entities
including investment-linked insurance funds, to elect to measure that
portion of the investment in the associate at fair value through profit
or loss in accordance with IFRS 9 regardless of whether these entities
have significant influence over that portion of the investment.

(d) IAS 28 requires a portion of an investment in an associate or a joint

venture to be classified as held for sale if the disposal of that portion of
the interest would fulfil the criteria to be classified as held for sale in
accordance with IFRS 5.

(e) The consensus of SIC-13 has been incorporated into IAS 28. As a result,
gains and losses resulting from a contribution of a non-monetary asset
to an associate or a joint venture in exchange for an equity interest in
an associate or a joint venture are recognised only to the extent of
unrelated investors’ interests in the associate or joint venture, except
when the contribution lacks commercial substance, as that term is
described in IAS 16 Property, Plant and Equipment.

(f) The disclosure requirements have been placed in IFRS 12.

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Dissenting opinion on amendment issued in May 2008

Dissent of Tatsumi Yamada

DO1 Mr Yamada voted against one of the amendments to IAS 28 Investments in
Associates issued in Improvements to IFRSs in May 2008.

DO2 Mr Yamada believes it is inappropriate not to allocate any additional

impairment losses to the goodwill and other assets that form part of the
carrying amount of the investment in the associate. In his view, because he
believes that an investor can identify attributable goodwill when it makes an
investment, all impairment losses recognised with respect to the investor’s
investment in an associate should be allocated to the goodwill and other assets
that form part of the carrying amount of the investment.

DO3 Mr Yamada also believes that all impairment losses allocated to goodwill
should not be subsequently reversed. In his view the non-allocation of
impairment losses to goodwill as required by the amendment and the
subsequent reversal of such impairment losses in substance leads to the
recognition of internally generated goodwill. He believes that the amendment
to IAS 28 is not consistent with paragraphs 124 and 125 of IAS 36 Impairment of
Assets, which prohibit the reversal of impairment losses related to goodwill.

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Dissenting Opinions from Sale or Contribution of Assets

between an Investor and its Associate or Joint Venture
(Amendments to IFRS 10 and IAS 28) as issued in
September 2014
DO1 Mr Kabureck, Ms Lloyd and Mr Ochi voted against the publication of Sale or
Contribution of Assets between an Investor and its Associate or Joint Venture
(Amendments to IFRS 10 and IAS 28). The reasons for their dissents are set out
below.

Dissent of Mr Kabureck
DO2 Mr Kabureck dissents from the amendments to IFRS 10 and IAS 28, which
require full gain or loss recognition in the accounting for the loss of control
when a parent (investor) sells or contributes a business, as defined in IFRS 3
Business Combinations, to an investee (ie an associate or a joint venture) that is
accounted for using the equity method.

DO3 He agrees that the control of a business can be lost regardless of whether the
acquirer is a related or an unrelated party. However, he believes that the
accounting for the gain or loss should be different if the sale or contribution is
to an investee that is accounted for using the equity method. He observes that
the investor’s interest in the gain or loss will eventually affect the future
investee’s profit or loss recognised in the investor’s profit or loss.

DO4 His concern can be illustrated by a simple example:

An investor sells a business to a 40 per cent-owned associate accounted for

using the equity method. The full gain is CU100.10 This gain of CU100 is
reflected in the associate’s financial statements through the higher value of
the net assets acquired. Over time, assuming that no goodwill or indefinite
lived intangible assets are involved, the associate’s future profits or losses will
be lower by CU100 as the assets are consumed and, therefore, the investor’s
share of the associate’s profits or losses will be lower by CU40. Consequently,
the net gain of the investor over time is CU60, not CU100.

DO5 Accordingly, he believes that a more faithful representation of the transaction

would be to recognise an immediate gain of CU60 and a deferred gain of CU40,
which would be amortised into income, making it consistent with the
consumption of the sold assets in the investee’s operations. He believes that it
would be inappropriate to immediately recognise the full gain knowing that
over time there would be lower profits to the extent of the equity interest in
the investee.

DO6 Mr Kabureck observes that his preferred partial gain or loss accounting is
consistent with the accounting for the sales of assets that do not constitute a
business, as described in paragraphs BC190F of IFRS 10 and BC37F of IAS 28.
Whether or not the assets sold or contributed do, or do not, constitute a
business, seems to him to provide little rationale for different gain or loss
treatment. He further observes that the line between what constitutes a
business versus a collection of assets is frequently unclear, often based on

10 In this document, monetary items are denominated by ‘currency units’ (CU).

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judgement and represents an interpretation challenge in practice. He

disagrees with introducing another accounting difference that is dependent
on the interpretation of the definition of a business.

Dissent of Ms Lloyd and Mr Ochi

DO7 Ms Lloyd and Mr Ochi agree that the sale of assets that constitute a business
and the sale of assets that do not constitute a business should be treated
differently for the reasons given in paragraphs BC190G of IFRS 10 and BC37G
of IAS 28. However, they also believe that the accounting result should not
differ depending on whether assets that do not constitute a business are
transferred in a transaction that is structured as a sale of assets or as a sale of
the entity that holds those assets. Ms Lloyd and Mr Ochi believe that these
amendments do not achieve that result.

DO8 The stated objective of these amendments is to address the conflict between
the requirements of IFRS 10 and IAS 28. Prior to these amendments, IFRS 10
required full gain or loss recognition on the loss of control of a subsidiary,
whereas IAS 28 restricted the gain or loss resulting from the sale or
contribution of assets to an associate or a joint venture to the extent of the
interests that were attributable to unrelated investors in that associate or joint
venture (downstream transactions).

DO9 As a result of these amendments, there will continue to be a full gain or loss
recognition on the loss of control of a subsidiary that constitutes a business
under IFRS 10, as well as a full gain or loss recognition resulting from the sale
or contribution of assets that constitute a business between an investor and its
associate or joint venture under IAS 28. The gain or loss recognised on the sale
of the business will be the same whether it is structured as a sale of assets that
constitute a business or as a sale of the entity that contains a business. As
stated above, Ms Lloyd and Mr Ochi agree with this result.

DO10 Even after the amendments, IAS 28 will continue to restrict the gain or loss
resulting from the sale or contribution of assets that do not constitute a
business to an associate or a joint venture to the extent of the interests that
are attributable to unrelated investors in that associate or joint venture.
However, as a result of these amendments, under IFRS 10, when an entity sells
an interest in a subsidiary that does not contain a business to an associate or a
joint venture and as a result loses control of that subsidiary but retains joint
control or significant influence over it, the gain or loss recognised is also
limited to the unrelated investor’s interests in the associate or joint venture to
which the interest in the subsidiary was sold. In addition, the entity will
remeasure its retained interest in the former subsidiary to fair value at the
date it loses control, even though that retained interest is not in an entity that
constitutes a business. Ms Lloyd and Mr Ochi acknowledge that under the
amendments, recognition of the gain or loss on remeasurement will be
limited to the unrelated investor’s interests in the associate or joint venture to
which the interest in the subsidiary was sold. However, because Ms Lloyd and
Mr Ochi believe the sale of a subsidiary that does not constitute a business,
and the sale of the assets held in that subsidiary, is substantially the same

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transaction, they do not find any justification for the recognition of any
additional gain on the remeasurement of the retained portion.

DO11 Furthermore, Ms Lloyd and Mr Ochi note that if the retained interest in the
former subsidiary is an investment accounted for in accordance with IFRS 9
Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement,
the amount of gain or loss recognised on remeasurement will not be
restricted. A full gain or loss will be recognised on remeasurement of the
retained interest even though that interest is not in an entity that constitutes
a business. As a result of the remeasurement of the retained interest in the
former subsidiary, the amount of gain or loss recognised in a transaction
involving the same underlying assets will still be different depending on
whether those assets are transferred in a transaction that is structured as a
sale of assets or as a sale of the entity that holds the assets. Ms Lloyd and Mr
Ochi disagree with this result. They believe that the remeasurement of a
retained interest in a former subsidiary to fair value when control is lost is a
fundamental principle of IFRS 10. They also believe that accounting for equity
interests that do not represent control, joint control or significant influence at
fair value is a fundamental principle of IFRS 9 and IAS 39. Ms Lloyd and Mr
Ochi do not believe that these principles can be reconciled in a limited-scope
amendment to the treatment in IAS 28 of downstream transactions that
involve the sale of assets that do not constitute a business.

DO12 Consequently, Ms Lloyd and Mr Ochi dissent from these amendments because
they do not fully address the concerns of the Board and the IFRS
Interpretations Committee as set out in paragraphs BC190D of IFRS 10 and
BC37D of IAS 28.

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IAS 28 BC

Dissent of Mr Takatsugu Ochi from Long-term Interests in

Associates and Joint Ventures (Amendments to IAS 28)
DO1 Mr Ochi voted against the publication of Long-term Interests in Associates and Joint
Ventures (Amendments to IAS 28). The reasons for his dissent are set out below.

DO2 Mr Ochi believes that interests in an associate or joint venture should be

subject to either the requirements in IFRS 9 or the requirements in IAS 28, but
not both. Accordingly, he disagrees with amending IAS 28 without also
specifying the types of interests in an associate or joint venture that an entity
accounts for using the equity method, and the types of interests in such
entities that an entity accounts for applying IFRS 9.

DO3 Mr Ochi notes that the amendments would result in ‘dual application’ of
accounting requirements to the same asset, which he thinks is contrary to
basic principles of accounting standards. He believes that such dual
application of accounting requirements might result in double counting and,
therefore, could undermine the quality of financial statements.

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