International Accounting Standard 27

• Issued: in 1989; re-issued in 1994, 2003 and 2008, followed by amendments
• Effective date: 1 July 2009
• What it does:
  • • It defines consolidated and separate financial statements;
    • It prescribes methods of presenting the investments in separate financial statements;
    • It contains guidance on separate financial statements of investment entities, presenting dividends and group reorganizations.
    • It requires a number of disclosures.

Key terms:

Consolidated financial statements are the financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity. (IAS 27.4)

Please note that group includes only a parent and its subsidiaries.

Separate financial statements are the financial statements of a parent, or an investor with joint control of, or significant influence over, an investee. In these financial statements, the investments are presented in one line, in accordance with the method selected from the below options.

IAS 27 does NOT prescribe the need to present separate financial statements.

Instead, it prescribes the rules for presenting them in a situation when an entity voluntarily decides to issue them.

Accounting methods

IAS 28 permits 3 methods of accounting for subsidiaries, associates and joint ventures in the investor's separate financial statements:

1. At cost;
2. In line with IFRS 9; or
3. Using the equity in line with IAS 28.

The same accounting method shall be applied for the same category of investments.
 

Other rules

1. Investment entities: Investment entities are defined by IFRS 10.
   An investment entity needs to account for its investments in subsidiaries at fair value through profit or loss in the separate financial statements, if it is required to measure its investment at FVTPL in line with IFRS 10.
2. Dividends: these are recognized in the separate financial statements when the right to receive them is established.
   Dividends are recognized in profit or loss except for the situation when the investor applies equity method. In this case, dividend reduces the carrying amount of the investment.

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