Subsidiaries acquired exclusively with a view to resale - a new approach

Abstract

The previous version of AC 132, Consolidated Financial Statements and Accounting for Investments in Subsidiaries, contained an exemption from the consolidation of a subsidiary where control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future. With the release of IFRS 5 (AC 142), Noncurrent Assets Held for Sale and Discontinued Operations, this exemption from consolidation has been eliminated; and the revised IAS 27 (AC 132), Consolidated and Separate Financial Statements, now requires all subsidiaries to be consolidated. The disclosure and individual fair value accounting exemptions provided in IFRS 5 (AC 142) for subsidiaries acquired exclusively with a view to resale should save costs and effort in the consolidation of these subsidiaries. Care should, however, be taken to ensure that compliance is achieved with the IFRS 5 (AC 142) criteria for classifying a disposal group as 'held for sale' on the date of acquisition. Failure to comply with these criteria upon the acquisition of a subsidiary acquired exclusively with a view to resale may well result in unfavorable implications for the group.