Ind AS 27

Separate Financial Statements

Presented By: CA Alok Garg

ICAI Certificate Course on IFRS

The objective of this Ind AS is to prescribe the accountingand disclosure requirements :

for investments in subsidiaries, joint ventures andassociates when an entity prepares separate financialstatements

Objective

Scope

This Standard shall be applied in accounting for investments insubsidiaries, joint ventures and associates when an entity elects,or is required by law, to present separate financial statements.

This Standard does not mandate which entities produce SFS. Itapplies when an entity prepares SFS that comply with IndianAccounting Standards.

Consolidated financial statements are the financial statements of agroup in which the assets, liabilities, equity, income, expenses and cashflows of the parent and its subsidiaries are presented as those of a singleeconomic entity.

Separate financial statements are those presented by a parent (i.e.an investor with control of a subsidiary) or an investor with jointcontrol of, or significant influence over, an investee, in which theinvestments are accounted for at cost or in accordance with Ind AS 109,Financial Instruments.

Note : Financial statements in which the equity method is applied are not separate financial statements. These may be termed as ‘consolidated financial statements’.

Definitions

Preparation of Separate Financial Statements

(Para 9) SFS shall be prepared in accordance with all applicable IndAS, except as provided in paragraph 10.

(Para 10) When an entity prepares SFS, it shall account forinvestments in subsidiaries, joint ventures and associates either:(a) at cost, or(b) in accordance with Ind AS 109.

The entity shall apply the same accounting for each category of Investments.

An entity shall recognise a dividend from a subsidiary, a JV or an associate in profit or loss in its SFS when its right to receive the dividend is established.

Investments that are classified as held for sale : Investments accounted for at cost shall be accounted for in accordance with Ind AS 105, when they are classified as held for sale (or included in a disposal group that is classified as held for sale).

As per Ind AS 28, If an entity elects, to measure its investments in associates or JV at FVTPL in accordance with Ind AS 109, it shall also account for those investments in the same way in its separate financial statements.

Para 18 of Ind AS 28 gives entities, such as , venture capital organizations, mutual funds, unit trusts or similar entities, an option to measure their investment in an associate or joint venture as at fair value through profit or loss (FVTLP) in accordance with the Ind AS 109, instead of the equity method.

Preparation of Separate Financial Statements

As per Ind AS 110, If a parent is required, to measure its investment in a subsidiary at FVTPL in accordance with Ind AS 109, it shall also account for its investment in a subsidiary in the same way in its separate financial statements.

Para 31 of Ind AS 110, requires an Investment Entity to measure investment in subsidiaries as at FVTPL in accordance with Ind AS 109, instead of consolidation.

Preparation of Separate Financial Statements

What is an Investment Entity?

A parent shall determine whether it is an investment entity. An investment entity is an entity that:

(a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;

(b)commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and

(c)measures and evaluates the performance of substantially all of its investments on a fair value basis.

Investment Entity - Separate Financial Statement

When a parent ceases to be an investment entity, or becomes an investment entity, it shall account for the change from the date when the change in status occurred, as follows:

(a) when an entity ceases to be an investment entity, the entity shall, in accordance with paragraph 10, either:

(i) account for an investment in a subsidiary at cost. The fair value of the subsidiary at the date of the change of status shall be used as the deemed cost at that date; or

(ii) continue to account for an investment in a subsidiary in accordance with Ind AS 109.

Investment Entity - Separate Financial Statement

(b) when an entity becomes an investment entity, it shall account for an investment in a subsidiary at FVTPL in accordance with Ind AS 109.

The difference between the previous carrying amount of the subsidiary and its fair value at the date of the change of status of the investor shall be recognised as a gain or loss in profit or loss.

The cumulative amount of any fair value adjustment previously recognised in other comprehensive income in respect of those subsidiaries shall be treated as if the investment entity had disposed of those subsidiaries at the date of change in status.

Investment Entity - Separate Financial Statement

When a parent/an entity reorganises the structure of its group by establishinga new entity as its parent in a manner that satisfies the following criteria:

(a) the new parent obtains control of the original parent by issuing equityinstruments in exchange for existing equity instruments of the original parent;

(b) the assets and liabilities of the new group and the original group are the sameimmediately before and after the reorganisation; and

(c) the owners of the original parent before the reorganisation have the sameabsolute and relative interests in the net assets of the original group and the newgroup immediately before and after the reorganisation,

(d) and the new parent accounts for its investment in the original parent inaccordance with paragraph 10(a) in its separate financial statements (ie at cost),the new parent shall measure cost at the carrying amount of its share of the equityitems shown in the separate financial statements of the original parent at the dateof the reorganisation.

Reorganisation – Accounting in SFS

Disclosure Requirements

Disclosures:

An entity shall apply all applicable Ind ASs when providing disclosures in its Separate financial statements, including the requirements as given below.

When a parent, in accordance with Ind AS 110, elects not to prepare CFS and instead prepares SFS, it shall disclose in those separate financial statements:

(a) the fact that the financial statements are separate financial statements; that the exemption from consolidation has been used; the name and principal place of business (and country of incorporation, if different) of the entity whose consolidated financial statements that comply with Ind ASs have been produced for public use; and the address where those consolidated financial statements are obtainable.

Disclosures:

(b) a list of significant investments in subsidiaries, JVs and associates, including:

(i) the name of those investees.

(ii) the principal place of business (and country of incorporation, if

different) of those investees.

(iii) its proportion of the ownership interest (and its proportion of

the voting rights, if different) held in those investees.

(c) a description of the method used to account for the investments listed

under (b).

Disclosures:

When an investment entity that is a parent prepares, in accordance with this standard, separate financial statements as its only financial statements, it shall disclose that fact. The investment entity shall also present the disclosures relating to investment entities required by Ind AS 112, Disclosure of Interests in Other Entities.

Disclosures:

• When a parent or an investor with joint control of, or significant influence over, an investee prepares separate financial statements, the parent or investor shall identify the financial statements prepared in accordance with Ind AS 110, Ind AS 111 or Ind AS 28 to which they relate. The parent or investor shall also disclose in its separate financial statements:

(a) the fact that the statements are separate financial statements

(b) list of significant investments in subsidiaries, JV and associates, including:

i. the name of those investees.

ii. the principal place of business (and country of incorporation, if different) of those investees.

iii. its proportion of the ownership interest (and its proportion of the voting rights, if different) held in those investees.

(c) a description of the method used to account for the investments listed under (b).

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Comparison – IFRS Vs Ind AS Vs AS

IAS 27 Vs Ind AS 27

IAS 27 requires to disclose the reason for preparing SFS if not requiredby law. As the Companies Act mandates preparation of separatefinancial statements, this has been removed from Ind As 27.

IAS 27 allows the entities to use the equity method to account forinvestment in subsidiaries, joint ventures and associates in their SFS.Such option is not given in Ind AS 27, as the equity method is not ameasurement basis like cost and fair value but is a manner ofconsolidation and therefore would lead to inconsistent accountingconceptually.

Ind AS Vs AS

Under Indian GAAP, all entities are required to prepare and presentseparate financial statements, without any exception. In a parent’s SFS,investments in subsidiary should be accounted for in accordance with AS13. AS 13 requires such investments to be valued at cost as adjusted for anydiminution, other than temporary in the value of those investments.

Ind-AS specifically defines SFS as “those presented by a parent (i.e aninvestor with control of a subsidiary) or an investor with joint control of,or significant influence over, an investee, in which the investments areaccounted for at cost or in accordance with Ind AS 109.

Ind AS 27 requires that when an entity prepares separate financialstatements, it shall account for investments in subsidiaries, joint venturesand associates either:- at cost, or- in accordance with Ind AS 109.

Use your brain...

AG Ltd is not having any investment in subsidiary, joint venture orassociates. It is preparing its Separate Financial Statements under Ind AS27, Separate Financial Statements.

Evaluate whether above position is correct/ Incorrect with supportivereasons.

Solution:Incorrect, Ind AS 27 does not apply if a companydoes not have any subsidiary, joint venture orassociates.

Than Q!!Presented by :

Alok Kumar GargCA, CS, Dip. IFRS (ACCA) UK, CIFRS (ICAI), B.Com (Hons.)

(P) 999 999 1543(E) caalokgarg@gmail.com