IFRS Practice Issues IFRS10 Transition

IFRS PRACTICE ISSUES
Adopting the
consolidation
suite of standards
Transition to IFRSs 10,
11 and 12
January 2013
kpmg.com/ifrs
Contents
Simplifications provide relief
1. Extent of relief depends on extent of comparatives
2. Adopting the consolidation standard

2.1 Date of testing the consolidation conclusion
2.2 No change in consolidation conclusion
2.3 First-time consolidation
2.4 Deconsolidation
2.5 Interaction with income taxes
4
4
5
5
13
15
3. Adopting the joint arrangements standard

3.1 Testing for joint venture vs joint operation
3.2 Transitioning to the equity method
Collapsing the investment
3.3 Transitioning from the equity method
Grossing up the investment
3.4 Transitioning from investment accounting
3.5 Interaction with income taxes
16
16
4. Relief from the related disclosures

4.1 Interests in other entities
4.2 Change in accounting policy
22
22
22
17
19
20
21
About this publication

23
Content 23
Keeping you informed
23
Acknowledgements 25
IFRS Practice Issues: Adopting the consolidation suite of standards | 1
Simplifications provide relief

When the new consolidation suite of standards was published in May 2011, we were not the only ones
to ask questions about the transitional requirements. For example, what was really the date of initial
application? And which versions of other standards, such as IFRS 3 Business Combinations, should be
applied in making the transitional adjustments? In addition, questions were raised by constituents about
whether the cost/benefit of restating comparatives was reasonable when an entity provided more than
one year of comparatives, and the difficulty of providing some of the related disclosures.
The IASB listened to constituents questions and acted, issuing an exposure draft in December 2011. The
final amendments published in June 2012 simplify the process of adopting the standards on consolidation
and joint arrangements, and provide relief from the disclosures for unconsolidated structured entities
disclosures that could have been onerous for some to make retrospectively.
In this IFRS Practice Issues, we focus on the transition to the new standards, which is now upon us. For
additional guidance on the accounting models introduced by these standards, see our publication Insights
into IFRS, 9th Edition 2012/13. And for additional information on the consolidation exception for investment
entities, including transitional requirements, see our publication First Impressions: Consolidation relief for
investment funds.
Paul Munter
Mike Metcalf
Julie Santoro
Jim Tang
KPMGs global IFRS Business Combinations and Consolidation leadership team
KPMG International Standards Group
2013 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
2 | IFRS Practice Issues: Adopting the consolidation suite of standards
1.
Extent of relief depends on extent of

comparatives
IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of
Interests in Other Entities are effective for annual periods beginning on or after 1 January 2013. The
standards are based on a general principle of retrospective application on adoption.
Depending on the extent of comparative information provided in the financial statements, the
amendments simplify the transition and provide additional relief from disclosures that could have been
onerous.
The following table compares the transitional requirements of the standards as if there were no relief
from retrospective application, and after the relief provided by the amendments.
Adopting the consolidation standard (Section 2)
Transitional
requirements
without relief
The entity would be required to restate its entire history as if IFRS10 had always
been in effect. Relief would be available only to the extent that restatement was
impracticable.
Transitional
requirements
after relief
Easier assessment at the date of transition to IFRS10 (2.1 and 2.2)
For each investee, an entity tests the consolidation conclusion i.e. whether the
investee should be consolidated at the beginning of the annual period in which
IFRS10 is applied for the first time. If an entity with a calendar year end has not
adopted IFRS10 early, then this date is 1January 2013.
This means that there is no need to perform the consolidation assessment at
an earlier date, which avoids the need to consolidate and then deconsolidate a
controlling interest that was disposed of in the comparative period, for example.
An entity does not change its previous accounting if there is no change in the
consolidation conclusion.
Restatement limited to one year (2.3 and 2.4)
If there is a change in the consolidation conclusion and the investee is:

consolidated for the first time, then the mandatory restatement of comparatives
is limited to one year; or
deconsolidated, then the mandatory restatement of comparatives is again
limited to one year.
This means that entities that provide comparatives for more than one period have
the option of leaving additional comparative periods unchanged.
Adopting the joint arrangements standard (Section 3)

Transitional
requirements
without relief
The entity would be required to restate its entire history as if IFRS11 had always
been in effect. Relief would be available only to the extent that restatement was
impracticable.
Transitional
requirements
after relief
Restatement limited to one year (3.2 and 3.3)
If the entity is required to change the accounting for a joint venture (under IFRS 11)
to the equity method, then the mandatory restatement of comparatives is limited
to one year.
If the entity is required to change the accounting for a joint operation (under
IFRS11) from the equity method, then the mandatory restatement of comparatives
is again limited to one year.
This means that entities that provide comparatives for more than one period have
the option of leaving additional comparative periods unchanged.
Disclosures about interests in other entities (Section 4.1)

Transitional
requirements
without relief
The entity would be required to disclose all information required by IFRS12 in all
periods presented.
Transitional
requirements
after relief
Disclosures limited to one year
In addition to limiting the accompanying comparative information to be disclosed

under IFRS 12, there is further relief from the disclosures for unconsolidated
structured entities. These disclosures may be made prospectively from the date of
initial application i.e. from 1 January 2013 for an entity with a calendar year end
that does not early adopt the standards.
Disclosures about changes in accounting policies (Section 4.2)

Transitional
requirements
without relief
As part of its disclosures, the entity would be required to provide information about
the effect of the change in accounting policy on each financial statement line item and
on earnings per share. This disclosure would be required for both the current period
and for all comparative periods presented.
Transitional
requirements
after relief
Restatement limited to one year
Disclosure of the impact of initial application of standards is required only for the
period immediately preceding the date of adoption i.e. for 2012 for an entity with
a calendar year end that does not early adopt the standards.
This means that an entity is not required to keep additional accounting records
e.g. as if an investee had not been consolidated in the year of adopting the
standards in order to collect data to disclose the impact of adopting the standards
on the current period.
2.
Adopting the consolidation standard
IFRS 10 prescribes a completely new approach to assessing control, rather than simply adjusting the
previous model under IAS27 (2008) Consolidated and Separate Financial Statements and SIC12
Consolidation Special Purpose Entities. This new approach has significant implications for some
entities, and the IASB acknowledged that full retrospective application would have been burdensome.
As a result, the original IFRS10 issued in May 2011 included some relief on transition. However, a
number of key issues remained unclear, which led to the amendments in June 2012. The discussion that
follows is based on the final transitional requirements i.e. after amendment.
The amendments simplify the adoption of IFRS 10 by clarifying the date on which the need for
transitional adjustments is determined and limiting the period of restatement for some entities.
In the following sections, we discuss the transitional requirements of IFRS 10 with the help of
examples.
2.1
Date of testing the consolidation conclusion
IFRS 10.C2B
The amendments explain that the date of initial application in IFRS 10 refers to the beginning of the
annual reporting period in which IFRS 10 is applied for the first time. If an entity with a calendar year end
does not early adopt IFRS 10, then the date of initial application is 1 January 2013.
Example 1 Investment disposed of before transition
Company P acquired 48% of the shares in Company S on 1 March 2008. Although P had de facto
control over S, its accounting policy under IAS 27 (2003) and IAS 27 (2008) was to apply a power-togovern approach to consolidation. Therefore, P equity accounted its investment in accordance with
IAS28 Investments in Associates. P disposed of its investment in S on 1 June 2012.
The following diagram illustrates the fact pattern, based on Ps year end of 31 December.
1 January 2012
Date of initial application

of IFRS 10
1 January 2013
Comparative period
31 December 2013
Current period
Equity accounting
1 March 2008
Acquisition of
48% interest
1 June 2012
Disposal of
48% interest
Because Ps investment in S was disposed of before 1 January 2013, no adjustment is made to Ps

previous accounting for S on transition to IFRS 10 i.e. P does not need to assess, based on the
guidance in IFRS 10, whether it had de facto control over S in the periods before disposing of its
investment.
2.2
No change in consolidation conclusion
IFRS 10.C3
On the date of initial application of IFRS 10, an entity assesses whether the consolidation conclusion
is different under IAS 27 (2008) and SIC-12 compared with IFRS 10. When there is no change to the
consolidation conclusion for an investee, the entity is not required to make any adjustments to its
previous accounting for the investee.
Example 2 No change in consolidation conclusion
Changing the facts of Example 1, Company P acquired an additional 10% interest in Company S on
1 June 2012, and applied acquisition accounting (step acquisition) at that date because S became a
subsidiary of P under IAS 27 (2008).
The following diagram illustrates the fact pattern, based on Ps year end of 31 December.
1 January 2012

of IFRS 10
1 January 2013
Comparative period
Equity accounting
1 March 2008
Acquisition of
48% interest
31 December 2013
Current period
Consolidation
1 June 2012
Acquisition of
additional 10% interest
Because there is no change in the consolidation conclusion at 1 January 2013, no adjustment is

made to Ps previous accounting for S on transition to IFRS 10. This is despite the fact that the date of
obtaining control of S was different under IAS 27 (2008) (1 June 2012) and IFRS 10 (1March 2008).

Although the transitional requirements do not require retrospective application when the consolidation
conclusion is unchanged on the initial application of IFRS 10, it is not ruled out. This is relevant when the
date on which control is obtained differs between IAS 27/SIC-12 and IFRS 10, as in Example 2.
2.3
First-time consolidation
2.3.1
Restatement limited to one year
IFRS 10.C4C4A
If, at the date of initial application of IFRS 10, an entity concludes that an investee that was previously
unconsolidated should be consolidated, then comparative information is restated unless it is
impracticable to do so.
IFRS 10.C6B,
BC199C,
IAS 1 (2012).3838A
However, the IASB acknowledges that restating comparative information could be onerous for entities
presenting comparatives for more than one year. Therefore, the requirement to present restated
comparatives is limited to the immediately preceding period, which corresponds to the minimum
requirement for comparative information in IAS 1 Presentation of Financial Statements. An entity has an
option to leave further comparative periods unchanged, in which case that fact is disclosed.
Example 3 First-time consolidation Restatement of comparatives

IAS28.
Ps year end is 31 December and the date of initial application of IFRS 10 is 1 January 2013. At that
date, P concludes that it controls S under IFRS 10.
Scenario 1 One year of comparatives
P presents comparative information for one year, as required by IAS 1. Therefore, P will present the
following for the year ending 31 December 2013, all prepared in accordance with IFRS 10 (with S
consolidated):
financial statements for 2013
comparative financial statements for 2012
opening statement of financial position as of 1 January 2012.
This is illustrated in the following diagram.
1 March 2008
1 January 2012

of IFRS 10
31 December 2013
1 January 2013
Comparative
period restated
Equity accounting
Acquisition of
48% interest
Current period
Consolidation
Presentation of opening
statement of
financial position
Scenario 2 Two years of comparatives Minimum restatement

P presents comparative information for two years. As part of its adoption of IFRS 10, P decides to
restate only one year of comparatives. Therefore, P will present the following for the year ending
31December 2013.
Prepared in accordance with IFRS 10 (with S consolidated):

comparative financial statements for 2012
opening statement of financial position as of 1 January 2012.
IAS 1 (2012).40D
Comparative financial statements for 2011, prepared in accordance with IAS 27 (2008) (with S equity
accounted).
1 March 2008
1 January 2011
1 January 2012
Comparative period
not restated

of IFRS 10
1 January 2013
31 December 2013
Comparative
period restated
Equity accounting
Current period
Consolidation
Presentation of opening
statement of
financial position
Acquisition of
48% interest
This means that P will present two statements of financial position at effectively the same date under
two different standards: IAS 27 (2008) at 31 December 2011 (with S equity accounted), and IFRS 10 at
1 January 2012 (with S consolidated). Accordingly, P will need to be careful that its presentation is clear
for readers of the financial statements.
Scenario 3 Two years of comparatives Voluntary restatement
P presents comparative information for two years. As part of its adoption of IFRS 10, P decides
to restate both years of comparatives. Therefore, P will present the following for the year ending
31December 2013, all prepared in accordance with IFRS 10 (with S consolidated):
comparative financial statements for 2012 and 2011.
IAS 1 (2012).40D
The literal reading of IAS 1 is that an opening statement of financial position as of 1 January 2012
is required. However, in this scenario, this will be the same as the statement of financial position
presented at 31 December 2011. Therefore, there would be no need to effectively present the same
statement of financial position twice.
1 March 2008
1 January 2011
1 January 2012

of IFRS 10
31 December 2013
1 January 2013
Comparative period Comparative period

restated (voluntary) restated (mandatory)
Equity accounting
Current period
Consolidation
Acquisition of
48% interest
Insight Regulators may take a stricter approach

Local regulators in jurisdictions that require two years or more of comparatives may decide to require
full restatement. As illustrated in Scenario 3 of Example 3, this approach is permitted under the
standard, which allows but does not require the restatement of more than one year of comparatives.
This is an issue that an entity should discuss with its local regulator if there is any uncertainty over
whether the stricter approach of full restatement will be required by the regulator.
2.3.2
Determining which standards to apply
IFRS 10.C4BC4C
An entity applies acquisition accounting as specified in IFRS 3 when it consolidates an investee for the
first time on transition, even if the investee is not a business (see table in 2.3.3). Depending on the
date on which control was obtained, an entity can choose which version of the standard to apply. In
this regard, the consolidation standard is also relevant if there were transactions with non-controlling
interests (NCI) after obtaining control.
Control obtained
Before effective date of IFRS 3 (2008) /
IAS27 (2008)
Apply IFRS 3 (2008) or IFRS 3 (2004).

If relevant, apply either IFRS10 for all periods,
or IAS27(2003) up to the effective date of
IAS27(2008) and then apply IFRS10 from
that date.
After effective date of IFRS 3 (2008) /

IAS 27 (2008)
Apply IFRS 3 (2008).
If relevant, apply IFRS10.
Notes
IFRS3 (2008) was effective for business combinations in annual periods beginning on or after 1July 2009, or at an
earlier date if adopted early.
IAS27 (2008) was effective for annual periods beginning on or after 1July 2009, or at an earlier date if adopted early.
The standards were required to be adopted at the same time.
IFRS 10.BC196A
BC196C
The IASB notes that allowing entities to apply IFRS 3 (2004) and IAS 27 (2003) reduces the risk of
using hindsight to determine the transitional adjustments, which may therefore provide a more reliable
basis for consolidation.
2.3.3
Methodology distinguishes businesses from asset groups
IFRS 10.C4C4A
The following table highlights the steps to follow when consolidating an investee for the first time.
Step 1
Step 2
Determine the date on which the investor obtained control over the investee in
accordance with IFRS10 i.e. the new consolidation standard.
Investee is a business
Investee is not a business
Measure the investees assets,

liabilities and NCI as if acquisition
accounting had applied at that date.
Measure the investees assets, liabilities

and NCI as if acquisition accounting
had applied at that date, except that no
goodwill should be recognised.
Step 3
Roll forward these values to the beginning of the period immediately preceding
the year of adoption (assuming one year of comparatives).
Step 4
The difference between the values determined in Step3 and the carrying amount
of the investment is recognised in equity at the beginning of the immediately
preceding period. Additional comparatives may be left unadjusted.
If Step2 is
impracticable
The deemed acquisition date is the beginning of the earliest period for which
Step2 is practicable.
The immediately preceding period is restated unless the deemed acquisition
date is the beginning of the current period.
Example 4A First-time consolidation

IAS28.
Ps year end is 31 December and the date of initial application of IFRS 10 is 1 January 2013. At that date,
P concludes that it controls S under IFRS 10. P elects to apply IFRS 3 (2004), because S had obtained
information about fair value under IAS 28; this choice is explained further in Insight Incentive to use
standards that were in force (below).
P presents one year of comparatives in accordance with IAS 1, and the following diagram illustrates the
approach that P follows.
1 March 2008
1 January 2012

of IFRS 10
31 December 2013
1 January 2013
Comparative
period restated
Equity accounting
Acquisition of
48% interest
Current period
Consolidation
Transitional
adjustments made
Relevant facts
Amount paid for 48% interest in S at 1 March 2008:
10,000
Fair value of Ss identifiable net assets at 1 March 2008:
18,000
Roll-forward of the carrying amount of Ss identifiable net assets to 1January 2012:
25,000
Carrying amount of investment in S at 1 January 2012:
13,360
Steps for first-time consolidation (see above)

1) Under IFRS 10, control would have been obtained on 1 March 2008.
2) Under IFRS 3 (2004):

the fair value of Ss identifiable net assets at 1 March 2008 was 18,000;
NCI would have been measured at their proportionate interest in Ss identifiable net assets,
at9,360 (18,000 x 52%); and
goodwill would have been measured at 1,360 (10,000 - (18,000 x 48%)).
3) Rolling forward the values in Step 2 to 1 January 2012:
the carrying amount of Ss identifiable net assets would have been 25,000;
the carrying amount of NCI would have been 13,000 (9,360 + (7,0001 x 52%)); and
goodwill would have continued to be measured at 1,360.
4) Based on the calculations in Step 3, P records the following journal entry as of 1 January 2012.
Debit
Identifiable net assets of S
Goodwill
Credit
25,000
1,360
NCI
13,000
Investment in S
13,360
Insight Incentive to use standards that were in force

In Example 4A, there is no balancing amount to be recognised in equity. This is because Ps equity
accounting performed in accordance with IAS 28 was in effect a one-line consolidation that mirrored
IFRS 3 (2004). If, for example, P had elected to restate the consolidation by applying IFRS 3 (2008),
then the values calculated in Step 2 and rolled forward to Step 3 would probably not have been a
simple gross-up of the equity-accounted carrying amount. This is because the changes to IFRS 3 (2008)
might have had an impact on the amounts determined for adopting IFRS 10.
Depending on exact facts and circumstances, this highlights that the transition may be much easier to
apply using the standards in force when control was obtained.
IFRS 10.C4
As part of the consolidation process, the parent measures the subsidiarys assets and liabilities, and
determines the amount attributable to NCI. When the investee is a business, because the standard
refers to the investees assets rather than identifiable assets, this means that the calculation includes
goodwill as illustrated in Example 4A. (When the investee is not a business, the net amount calculated
in Step 2 of the consolidation process excludes goodwill.)
Insight Gain on bargain purchase not recognised
IFRS 10.C4C4A
In our view, any gain on a bargain purchase that may arise from the consolidation process is not
recognised in profit in loss as it would be under IFRS3 (2004) and IFRS 3 (2008) because the
standard only envisages the recognition of assets and liabilities. This means that any such gain is
subsumed into the amount recognised in equity as part of Step 4 of the consolidation process.
1 Difference between identifiable net assets as of 1 January 2012 and 1 March 2008 (25,000 - 18,000)
Insight Measuring consideration paid when restatement is impracticable

IFRS 10.C4A, IFRS 3.37
When restatement is impracticable and an entity applies IFRS 3 at a later date (without the recognition
of goodwill when the investee is not a business), in our view the fair value of the consideration paid
under IFRS 3 is the fair value of the parents investment in the investee at that date; it is not the
historical cost that the parent paid for its investment. This is consistent with the application of IFRS3
when control is achieved in stages (a step acquisition).
Example 4B First-time consolidation Restatement impracticable

Changing the facts of Example 4A, assume that it is impracticable for Company P to determine the fair
value of Company Ss net assets before 1 January 2013. The following diagram illustrates the approach
that P follows.
1 March 2008
1 January 2012

of IFRS 10
1 January 2013
Comparative period
Equity accounting
Acquisition of
48% interest
31 December 2013
Current period
Consolidation
Transitional
adjustments made
Relevant facts as at 1 January 2013
Fair value of Ss identifiable net assets:
30,000
Carrying amount of investment in S:
12,000
Fair value of investment in S:
16,000
Steps for first-time consolidation (see above)

1) The deemed date of obtaining control is 1 January 2013.
2) Under IFRS 3 (2008):
the fair value of Ss identifiable net assets at 1 January 2013 is 30,000;
the fair value of the consideration transferred is 16,000;
NCI are measured at their proportionate interest (accounting policy choice made by P) in Ss
identifiable net assets, at 15,600 (30,000 x 52%); and
goodwill arises of 1,600 ((16,000 + 15,600) - 30,000).
3) Step 3 is not applicable because the deemed acquisition date is the start of the current period
(1January 2013).
4) Based on the calculations in Step 2, P records the following journal entry at 1 January 2013.
Debit
Credit
30,000
Goodwill
1,600
NCI
15,600
Investment in S
12,000
Equity
4,000
In this example, which resulted in the recognition of goodwill, the amount recognised in equity is in
effect the unrecognised increase in the fair value of Ps investment in S (16,000 - 12,000).
Insight Grandfathering previous GAAP on adoption of IFRS

IFRS 1.C1, C5
Step 2 of the consolidation process (see above) refers to the application of acquisition accounting
and does not explicitly refer to the grandfathering of previous GAAP numbers as part of the first-time
adoption of IFRS.
For example, modifying the facts of Example 4A, assume that Company P acquired its investment
in Company S before its adoption of IFRS. When it adopted IFRS in 2011, P elected not to restate
the carrying amount of its investment and therefore carried forward the previous GAAP amount
into its opening IFRS statement of financial position. Accordingly, as shown in the diagram below,
Ps investment in S was accounted for at cost until 1January 2011 (Ps date of transition) and equity
accounted from that date under IAS28.
1 March 2008
Date of transition
to IFRS
1 January 2011
1 January 2012

of IFRS 10
1 January 2013
Comparative period
restated
Cost accounting
under previous GAAP
Acquisition of
48% interest
Equity accounting
under IFRS
Previous GAAP carrying

amount grandfathered
under IFRS 1
31 December 2013
Current period
Consolidation
Transitional
adjustments made
In our view, the transitional requirements of IFRS10 implicitly incorporate the transition under IFRS1
First-time Adoption of International Financial Reporting Standards, because those carrying amounts
became the basis for subsequent accounting under IFRS i.e. the previous election under IFRS1 may
be incorporated in the retrospective application under IFRS10. Therefore, Step 2 of the consolidation
process is based on the numbers that were grandfathered at the date of transition i.e. at 1January
2011 in the above example.
2.4 Deconsolidation
IFRS 10.C5
If, at the date of initial application of IFRS 10, an entity concludes that an investee that was previously
consolidated should be deconsolidated, then comparative information is restated unless it is
impracticable to do so. However, as in the case of first-time consolidation, the mandatory restatement
of comparatives is limited to one year (see 2.3.1).
IFRS 10.C5C5A
An entity applies IFRS 10 when an investee is deconsolidated on transition, regardless of the date on
which control was lost i.e. even if the date of losing control under IFRS 10 was before IAS 27 (2008)
was in effect.
IFRS 10.C5C5A
The following table highlights the steps that are followed when an investee is deconsolidated for the
first time.
Step 1
Determine the date on which the investor would have stopped consolidating in
accordance with IFRS10 i.e. the new consolidation standard.
Step 2
Measure the interest in the investee at the amount at which it would have been
measured if IFRS10 had been effective at that date.
Step 3
Roll forward this value to the beginning of the period immediately preceding the
year of adoption (assuming one year of comparatives).
Step 4
The difference between the value determined in Step3 and the carrying amount
of the investees net assets plus NCI is recognised in equity at the beginning
of the immediately preceding period. Additional comparatives may be left
unadjusted.
If Step2 is
impracticable
IFRS 10.25(b), C5
The deemed date of losing control is the beginning of the earliest period for
which Step2 is practicable.
The immediately preceding period is restated unless the deemed date of losing
control is the beginning of the current period.
In applying Step 1, it might be concluded that the investor would never have had control under IFRS10.
In that case, IFRS 10 does not apply in Step2 and the investee would be measured at that date in
accordance with other applicable standards e.g. at cost (consideration paid) under IAS 28.
Example 5 Deconsolidation
Company P has consolidated its 48% interest in Company S since it acquired the interest on 1 March
2008.
Ps year end is 31 December and the date of initial application of IFRS 10 is 1 January 2013. At that date,
P concludes that it does not control S under IFRS 10. Instead, S is an associate that should be equity
accounted.
P presents one year of comparatives in accordance with IAS 1, and the following diagram illustrates the
approach that P follows.
1 January 2012
1 March 2008

of IFRS 10
1 January 2013
Comparative period
restated
Consolidation
Acquisition of
48% interest
31 December 2013
Current period
Equity accounting
Transitional
adjustments made
Relevant facts
Amount paid for 48% interest in S at 1 March 2008:
10,000
Carrying amount of investment in S at 1 January 2012 as if equity accounted:
13,360
Carrying amount of identifiable net assets of S at 1 January 2012:
25,000
Carrying amount of goodwill at 1 January 2012:
Carrying amount of NCI at 1 January 2012:
1,360
13,000
Steps for deconsolidation (see above)

1) The date of losing control is 1 March 2008 i.e. S would never have been a subsidiary under
IFRS10.
2) The measurement of the investment in S at 1 March 2008 would have been 10,000.
3) Rolling forward the carrying amount of Ps investment in S using the equity method, the carrying
amount would have been 13,360 at 1 January 2012.
4) Based on the calculations in Step 3, P records the following journal entry as of 1 January 2012.
Debit
Investment in associate
13,360
NCI
13,000

Goodwill
Credit
25,000
1,360
This example is the reverse of Example 4A, and again shows no balancing amount to be recognised in
equity. This is because Ps equity accounting is in effect a one-line consolidation. However, if the facts
had been different e.g. if there were a gain on bargain purchase (negative goodwill) that had been
recognised in profit or loss, or acquisition-related costs that had been recognised in profit or loss then
there would have been a balancing entry to equity.
2.5
Interaction with income taxes
IAS 12.15, 22, 24, 32A When an investee is consolidated for the first time except for the initial recognition of goodwill the
initial recognition exemption in IAS 12 Income Taxes generally does not apply. As a result, deferred
taxes are generally recognised for any resulting temporary differences. Conversely, when a previous
subsidiary is deconsolidated on transition, deferred taxes will be derecognised as part of the transition;
this is because the related temporary differences are no longer present in the consolidated financial
statements. These adjustments might result in an adjustment to opening equity.
IAS 12.39, 44
In addition, an entity will need to reconsider the requirements of IAS 12 in respect of investments in
subsidiaries and associates, and interests in joint arrangements. Any related adjustments to deferred
tax will be recognised separately from the steps outlined in 2.3.3 and 2.4.
The requirements of IAS 12 are discussed in the 9th Edition 2012/13 of our publication Insights into IFRS
(3.13.110 and 510).
3.
Adopting the joint arrangements

standard
3.1
Testing for joint venture vs joint operation
IFRS 10.C1
Unlike under IFRS10, there is no relief under IFRS 11 from the date on which an entity assesses
whether a joint arrangement is a joint venture or a joint operation. An entity with a calendar year end,
that does not early adopt IFRS11 and that presents one year of comparatives, is required to classify its
joint arrangements as of 1 January 2012.
Example 6 Interest disposed of before transition
Company P acquired a 50% interest in jointly controlled entity J on its formation on 1 March 2008. P
elected to account for J using proportionate consolidation under IAS 31 Interests in Joint Ventures. P
disposed of its interest in J on 1 June 2012.
Ps year end is 31 December and the date on which it assesses its joint arrangements is 1 January
2012. As illustrated in the diagram below, Ps interest in J is not excluded from any transitional
adjustments, even though it was disposed of before 1 January 2013.
1 January 2012
1 January 2013
Comparative period
restated
Proportionate
consolidation
1 March 2008
Acquisition of
joint-controlling interest
IFRS 11.C2, C7, C12A,

BC69A,
IAS 1 (2012).3838A
31 December 2013
Current period
IFRS 11
applied
1 June 2012
Disposal of
However, like IFRS 10, the requirement to present restated comparatives is limited to the immediately
preceding period, which corresponds to the minimum requirement for comparative information in
IAS1. An entity has an option to leave further comparative periods unchanged. See Example 3 and
Insight Regulators may take a stricter approach in 2.3.1, which apply similarly to the adoption of
IFRS11.
3.2
Transitioning to the equity method Collapsing the

investment
3.2.1
General requirements
IFRS 11.C2C3, BC61
In transitioning from proportionate consolidation to the equity method, an entity collapses the
proportionately consolidated net asset value (including any allocation of goodwill), less any impairment,
into a single investment at the beginning of the earliest period restated.
IFRS 11.C4
Aggregating the individual assets and liabilities that were previously proportionately consolidated may
result in negative net assets. In this case, the entity recognises the corresponding liability only if it has
a legal or constructive obligation related to the negative net assets. If no liability is recognised, then
an adjustment is made to retained earnings at the beginning of the earliest period restated; the entity
discloses that fact and the unrecognised share of losses.
Example 7 Transitioning to the equity method
Company P obtained a 50% interest in jointly controlled entity J on its formation on 1March 2008. P
elected to account for J using proportionate consolidation under IAS 31. On transition to IFRS 11, P
determines that J is a joint venture that should be equity accounted.
P presents comparative information for one year, as required by IAS 1; therefore, the transition to the
equity method occurs at 1 January 2012, as illustrated in the following diagram.
1 January 2012
1 March 2008
1 January 2013
Comparative period
restated
Proportionate
consolidation
Acquisition of
31 December 2013
Current period
Equity accounting
Transitional
adjustments made
Relevant facts as of 1 January 2012
Carrying amount of goodwill:
7,500
Carrying amount of proportionate share of Js identifiable net assets (50%):
47,500
Journal entry on transitioning to IFRS 11 as of 1 January 2012

Debit
Investment in J
Credit
55,000
Goodwill
Proportionate share of identifiable net assets (various)
IFRS 11.C5
7,500
47,500
In addition, at 1 January 2012, P discloses a breakdown of the assets and liabilities that have been
combined into the single investment of 55,000.
IFRS 11.C2C3,
IAS 36.86
If goodwill related to the joint venture interest was previously allocated to a larger cash-generating
unit or group of units, then the amount of goodwill subsumed into the equity-accounted investee is
determined on the basis of relative carrying amounts; this approach simplifies the usual approach
in IAS36 Impairment of Assets when there is a disposal, which requires relative values as a basis.
In addition, the opening balance of the equity-accounted investee is assessed for impairment; the
methodology applied is discussed in the 9th Edition 2012/13 of our publication Insights into IFRS
(3.10.580).
3.2.2
Previous transition to proportionate consolidation
It is not clear how to apply the restatement requirements when:
under IAS 28, an investee changed from an associate to a proportionately consolidated jointly
controlled entity; as a result, the investor remeasured the investment in the associate at fair value
through profit or loss; and
on application of IFRS 11, the investee is an equity-accounted joint venture.
IAS 28.24, 45
IAS 28 (2011) states that if an investment in an associate becomes an investment in a joint venture, then
the entity continues to apply the equity method and does not remeasure the previously held interest.
This means that the previous remeasurement to fair value on the loss of significant influence would be
reversed as part of the restatement.
IFRS 11.C2
However, IFRS 11 provides specific guidance on transitioning from proportionate consolidation to the
equity method (see 3.2.1). Following this guidance, the previous remeasurement to fair value on the
loss of significant influence would not be reversed.
Given the ambiguity in terms of which standard takes precedence, in our view an entity should choose
an accounting policy, to be applied consistently, to follow the transitional guidance in either IAS28
(2011) or IFRS 11.
Example 8 Transitioning to the equity method following previous transition to
proportionate consolidation
In 2011, an entity obtained joint control over an existing associate and remeasured the previously
held interest in the associate at fair value through profit or loss. This resulted in a gain of 100 being
recognised in profit or loss, and 50 of reserves being reclassified to profit or loss.
The entity then applied proportionate consolidation to the jointly controlled entity in accordance with
IAS 31. In 2013, the entity adopts IFRS11 and needs to transition from proportionate consolidation to
the equity method. At the date of transition, the net carrying amount of the investee is 2,000.
Associate
(equity accounted)
Jointly controlled entity

(proportionately consolidated)
Step acquisition to joint control in 2011
Joint venture
(equity accounted)
Transition to IFRS 11
If the entity decides to follow the transition in IAS 28 (2011), then the carrying amount of the investee
on transition will be 1,900 (2,000 - 100). In addition, the reclassification of reserves of 50 will be
reversed.
Alternatively, if the entity decides to follow the transition in IFRS11 (see 3.2.1), then the carrying
amount of the investee on transition will be 2,000. Neither the previous gain of 100 nor the
reclassification of reserves of 50 will be reversed.
3.3
Transitioning from the equity method Grossing up

the investment
IFRS 11.C7C8
In transitioning a joint operation from the equity method to accounting for assets and liabilities, an entity
grosses up the equity-accounted investment to recognise its share of individual assets and liabilities,
including any goodwill. This is based on the amounts underlying the previous equity method and in
accordance with its participation share in the contractual arrangement.
IFRS 11.C9
The aggregate of the newly recognised assets and liabilities may differ from the investment
derecognised. When the individual net assets are lower, the net derecognised value is written off
against opening retained earnings. When the individual net assets are greater, goodwill of the joint
operation is first reduced so that the newly recognised net assets equal the derecognised investment.
If goodwill is fully eliminated, then any remaining amount is balanced by a credit to opening retained
earnings.
Example 9 Transitioning from the equity method
Company P obtained a 50% interest in jointly controlled entity J on its formation on 1March 2008.
P elected to account for J using the equity method under IAS 31 / IAS 28. On transition to IFRS 11, P
determines that J is a joint operation and that P should account for its share of the assets, liabilities,
revenue and expenses of J.
P presents comparative information for one year, as required by IAS 1; therefore, the transition from the
equity method occurs at 1 January 2012, as illustrated in the following diagram.
1 March 2008
1 January 2012
1 January 2013
Comparative period
restated
Equity method
Acquisition of
31 December 2013
Current period
Accounting for Ps share of assets, liabilities,

revenue and expenses
Transitional
adjustments made
Relevant facts as of 1 January 2012
Carrying amount of investment in J:
55,000
Represented by (at 50%):

property, plant and equipment:
50,000
loans receivable:
25,000
goodwill:
17,500
trade payables:
(12,500)
bank debt:
(15,000)
previously recognised impairment loss:
(10,000)
Journal entry on transitioning to IFRS 11 as of 1 January 2012

Debit
Property, plant and equipment
50,000
Loans receivable
25,000
Goodwill (17,500 - 10,000)
IFRS 11.C10
Credit
7,500
Trade payables
12,500
Bank debt
15,000
Investment in J
55,000
In addition, at 1 January 2012, P discloses a reconciliation between:
the investment in J derecognised; and
the assets and liabilities recognised.
If the previously unallocated impairment loss were greater than the carrying amount of goodwill, then
any remaining balance would be recognised as an adjustment to retained earnings. However, this
situation is expected to be rare, because it might indicate, for example, that an impairment loss should
have been recognised:
in the investees financial statements for its assets; or
in the investors accounting in respect of fair value adjustments.
3.4
Transitioning from investment accounting
IFRS 11.C12
In accounting for a joint operation in its separate financial statements, the entity derecognises its
previously held investment and recognises its interests in the underlying assets and liabilities. These
interests are determined in accordance with the transitional requirements provided for the consolidated
financial statements (see 3.3). Any difference between the investment derecognised and the net assets
recognised is an adjustment to opening retained earnings.
IFRS 11.BC67
There should be no difference between the amount recognised in the parties consolidated financial
statements and in their separate financial statements. Therefore, on transition, an entity recognises
the underlying assets and liabilities arising from the joint operation at the amounts recognised in the
consolidated financial statements; any difference between the investment derecognised and the net
assets recognised is recorded as an adjustment to retained earnings.
Insight Consolidated financial statements not prepared
An issue may arise if the entity does not prepare consolidated financial statements. In such scenarios,
in our view the entity is required to recognise its interest in the underlying assets and liabilities as
if consolidated financial statements had been prepared in which the investment was accounted
for under the equity method. Determining these amounts may be particularly difficult when the
investment was never accounted for under the equity method, although it may be possible that the
investment was accounted for under the equity method at a higher level in the group.
3.5
Interaction with income taxes
IFRS 11.C3, C11, C13
The initial recognition exemption included in IAS 12 does not apply to the recognition on transition of
either the equity method investment or the underlying assets and liabilities. Accordingly, deferred taxes
are generally recognised for any movements in temporary differences. Because the recognition of
the tax effects follows the transaction or event itself, on transition the effect of such deferred taxes is
recognised directly in equity i.e. in retained earnings.
IAS 12.39, 44
In addition, an entity will need to reconsider the requirements of IAS 12 in respect of investments in
subsidiaries and associates, and interests in joint arrangements.
The requirements of IAS 12 are discussed in the 9th Edition 2012/13 of our publication Insights into IFRS
(3.13.110 and 510).
4.
Relief from the related disclosures
4.1
Interests in other entities
IFRS 12.C2A
Consistent with the transitional relief provided under IFRSs 10 and 11, the amendments limit the
requirement to present all of the disclosures contained in IFRS 12 to the immediately preceding period.
IFRS 12.C2B
The amendments provide additional relief from the disclosures for unconsolidated structured entities for
all entities. Such disclosures may be provided prospectively from the date of initial application i.e. from
1 January 2013 for a calendar year entity, assuming no early adoption of the standards.
IFRS 12.2431
IFRS 12 requires extensive qualitative and quantitative disclosures about the nature of an entitys
interest and risks in unconsolidated structured entities. The disclosure requirements may require some
entities to develop new systems and/or controls to track the interest and risks in such entities. The relief
from retrospective application means that entities do not have to put in place new systems and controls
to provide these disclosures for comparative periods.
4.2
Change in accounting policy
IFRS 10.C6B,
IFRS 11.C12B
If an entity presents additional comparative information but elects not to restate beyond the
immediately preceding period (see 2.3.1 and 3.1), then it discloses that fact and explains the basis on
which the additional information is prepared.
IAS 8.28(f)
When the initial application of a standard has an effect on the financial statements, IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors requires entities (unless it is impracticable) to
quantify and disclose, for the current period and for each comparative period presented, the impact on:
each financial statement line item affected; and
basic and diluted earnings per share.
IFRS 10.C2A, BC199D, The amendments provide relief from this general principle. The impact of adopting of the standards
IFRS 11.C1B, BC69B
needs to be quantified only for the immediately preceding period not for the current period or any
additional comparative periods. The IASB provided this relief because it would be onerous for entities
adopting the standards to maintain parallel sets of records in the year of adoption for the purpose of
quantifying the impact on each financial statement line item and earnings per share.
About this publication

This publication has been produced by the KPMG International Standards Group (part of KPMG IFRG Limited).
Our IFRS Practice Issues publications address practical application issues that an entity may encounter when applying a
specific IFRS or related interpretation. They include a discussion of selected requirements, together with interpretative
guidance and examples to elaborate and clarify the practical application of the requirements.
Content
This edition of IFRS Practice Issues considers the requirements of Consolidated Financial Statements, Joint Arrangement and
Disclosure of Interests in Other Entities: Transition Guidance, which was published in June 2012. This IFRS Practice Issues
deals not only with the amendments but also with all aspects of the transition to the new consolidation suite of standards;
further discussion is included in the 9th Edition 2012/13 of our publication Insights into IFRS (chapters 2.5A and 3.6A).
The text is referenced to the amendments and to other IFRSs in issue at 1January 2013. References in the left-hand margin
identify the relevant paragraphs of the IFRSs.
In many cases, further interpretation will be needed in order for an entity to apply IFRS to its own facts, circumstances and
individual transactions.
IFRSs and their interpretation change over time. Accordingly, neither this publication nor any of our other publications should be
used as a substitute for referring to the standards and interpretations themselves.
Keeping you informed

Visit www.kpmg.com/ifrs to keep up to date with the latest developments in IFRS and browse our suite of publications.
Whether you are new to IFRS or a current user of IFRS, you can find digestible summaries of recent developments, detailed
guidance on complex requirements, and practical tools such as illustrative financial statements and checklists. For a local
perspective, follow the links to the IFRS resources available from KPMG member firms around the world.
All of these publications are relevant for those involved in external IFRS reporting. The In the Headlines series and Insights into
IFRS: An overview provide a high-level briefing for audit committees and boards.
User need
Publication series
Purpose
Briefing
In the Headlines
Provides a high-level summary of significant accounting, auditing and

governance changes together with their impact on entities.
IFRS Newsletters
Highlights recent IASB and FASB discussions on the financial

instruments, insurance, leases and revenue projects. Includes an
overview, an analysis of the potential impact of decisions, current status
and anticipated timeline for completion.
The Balancing Items
Focuses on narrow-scope amendments to IFRS.
New on the Horizon
Considers the requirements of due process documents such as

exposure drafts and provides KPMGs insight. Also available for specific
sectors.
First Impressions
Considers the requirements of new pronouncements and highlights the

areas that may result in a change in practice. Also available for specific
sectors.
User need
Publication series
Purpose
Application issues
Insights into IFRS
Emphasises the application of IFRS in practice and explains the

conclusions that we have reached on many interpretative issues.
Insights into IFRS: An

overview
Provides a structured guide to the key issues arising from the standards.
IFRS Practice Issues
Addresses practical application issues that an entity may encounter when

applying IFRS. Also available for specific sectors.
IFRS Handbooks
Includes extensive interpretative guidance and illustrative examples to

elaborate or clarify the practical application of a standard.
Illustrative financial
statements
Illustrates one possible format for financial statements prepared under

IFRS, based on a fictitious multinational corporation. Available for annual
and interim periods, and for specific sectors.
Disclosure checklist
Identifies the disclosures required for currently effective requirements

for both annual and interim periods.
GAAP comparison
IFRS compared to
USGAAP
Highlights significant differences between IFRS and USGAAP.The focus

is on recognition, measurement and presentation; therefore, disclosure
differences are generally not discussed.
Sector-specific issues
IFRS Sector
Newsletters
Provides a regular update on accounting and regulatory developments

that directly impact specific sectors.
Application of IFRS
Illustrates how entities account for and disclose sector-specific issues in

their financial statements.
Accounting under IFRS
Focuses on the practical application issues faced by entities in specific

sectors and explores how they are addressed in practice.
Impact of IFRS
Provides a high-level introduction to the key IFRS accounting issues for

specific sectors and discusses how the transition to IFRS will affect an
entity operating in that sector.
Interim and annual

reporting
For access to an extensive range of accounting, auditing and financial reporting guidance and literature, visit KPMGs
Accounting Research Online. This web-based subscription service can be a valuable tool for anyone who wants to stay informed
in todays dynamic environment. For a free 15-day trial, go to aro.kpmg.com and register today.
Acknowledgements
We would like to acknowledge the efforts of the principal authors of this publication. They are Nirav Patel and Julie Santoro of
the KPMG International Standards Group.
We would also like to thank the contributions made by other reviewers, including other members of the Business Combinations
and Consolidation Topic Team:
Mahesh Balasubramanian
KPMG in Bahrain
Peter Carlson
KPMG in Australia
Steve Douglas
KPMG in Canada
Egbert Eeftink
KPMG in the Netherlands
Ramon Jubels
KPMG in Brazil
Wincey Lam
KPMG in Hong Kong
Steve McGregor
KPMG in South Africa
Mike Metcalf
KPMG in the UK
Paul Munter
KPMG in the US
Claus Nielsen
KPMG in Russia
Emmanuel Paret
KPMG in France
Jim Tang
KPMG in Hong Kong
Publication name: IFRS Practice Issues: Adopting the consolidation suite of standards
Publication number: 121461
Publication date: January 2013
KPMG International Standards Group is part of KPMG IFRG Limited.
KPMG International Cooperative (KPMG International) is a Swiss entity that serves as a coordinating entity for a network of
independent firms operating under the KPMG name. KPMG International provides no audit or other client services. Such services
are provided solely by member firms of KPMG International (including sublicensees and subsidiaries) in their respective geographic
areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein
shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member
firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any other member firm, nor
does KPMG International have any such authority to obligate or bind KPMG International or any other member firm, in any manner
whatsoever.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information
without appropriate professional advice after a thorough examination of the particular situation.
The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

IFRS Practice Issues IFRS10 Transition

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

IFRS Practice Issues IFRS10 Transition

Uploaded by

Copyright:

Available Formats

IFRS PRACTICE ISSUES

1. Extent of relief depends on extent of comparatives

2. Adopting the consolidation standard

3. Adopting the joint arrangements standard

4. Relief from the related disclosures

About this publication

IFRS Practice Issues: Adopting the consolidation suite of standards | 1

Simplifications provide relief

2 | IFRS Practice Issues: Adopting the consolidation suite of standards

Extent of relief depends on extent of

Easier assessment at the date of transition to IFRS10 (2.1 and 2.2)

Restatement limited to one year (2.3 and 2.4)

If there is a change in the consolidation conclusion and the investee is:

IFRS Practice Issues: Adopting the consolidation suite of standards | 3

Adopting the joint arrangements standard (Section 3)

Restatement limited to one year (3.2 and 3.3)

Disclosures about interests in other entities (Section 4.1)

Disclosures limited to one year

In addition to limiting the accompanying comparative information to be disclosed

Disclosures about changes in accounting policies (Section 4.2)

Restatement limited to one year

4 | IFRS Practice Issues: Adopting the consolidation suite of standards

Adopting the consolidation standard

Date of testing the consolidation conclusion

Date of initial application

Because Ps investment in S was disposed of before 1 January 2013, no adjustment is made to Ps

IFRS Practice Issues: Adopting the consolidation suite of standards | 5

No change in consolidation conclusion

Date of initial application

Because there is no change in the consolidation conclusion at 1 January 2013, no adjustment is

Restatement limited to one year

6 | IFRS Practice Issues: Adopting the consolidation suite of standards

Example 3 First-time consolidation Restatement of comparatives

Date of initial application

Scenario 2 Two years of comparatives Minimum restatement

Prepared in accordance with IFRS 10 (with S consolidated):

IFRS Practice Issues: Adopting the consolidation suite of standards | 7

This is illustrated in the following diagram.

Date of initial application

Date of initial application

Comparative period Comparative period

8 | IFRS Practice Issues: Adopting the consolidation suite of standards

Insight Regulators may take a stricter approach

Determining which standards to apply

Apply IFRS 3 (2008) or IFRS 3 (2004).

After effective date of IFRS 3 (2008) /

Apply IFRS 3 (2008).

If relevant, apply IFRS10.

The standards were required to be adopted at the same time.

Methodology distinguishes businesses from asset groups

Investee is not a business

Measure the investees assets,

Measure the investees assets, liabilities

IFRS Practice Issues: Adopting the consolidation suite of standards | 9

Example 4A First-time consolidation

Date of initial application

Amount paid for 48% interest in S at 1 March 2008:

Fair value of Ss identifiable net assets at 1 March 2008:

Roll-forward of the carrying amount of Ss identifiable net assets to 1January 2012:

Carrying amount of investment in S at 1 January 2012:

Steps for first-time consolidation (see above)

10 | IFRS Practice Issues: Adopting the consolidation suite of standards

2) Under IFRS 3 (2004):

Insight Incentive to use standards that were in force