IAS 27 – Separate Financial Statements ( summary with examples )

Objective

IAS 27 prescribes the accounting and presentation requirements for separate financial statements (SFS), which are financial statements presented by a parent, investor in an associate, or venturer in a joint venture, where the investments are accounted for at cost, in accordance with IFRS 9, or using the equity method.

Note: IAS 27 now deals only with separate financial statements; consolidated financial statements are covered under IFRS 10.

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🧾 1. Scope

Applies to entities that:

• Prepare separate financial statements (not consolidated).

• Hold subsidiaries, associates, or joint ventures.

Separate financial statements are optional but must comply with IFRS.

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💡 2. Key Definitions

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⚙️ 3. Measurement Options for Investments in SFS

IAS 27 allows the following methods for investments in subsidiaries, associates, or joint ventures:

If equity method is used in SFS, it must be applied consistently.

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🧮 4. Example 1 – Investment in Subsidiary at Cost

Scenario:

• Parent acquires 100% of Subsidiary X for $500,000.

• Dividend received = $50,000.

Journal Entries:

1. Record investment at cost:

2. Record dividend received:

Note: Under cost method, dividends are recognized as income; the carrying amount of the investment does not change for profits of subsidiary.

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📊 5. Example 2 – Investment in Subsidiary Using Equity Method in SFS

• Subsidiary reports net profit = $100,000

• Dividend paid = $20,000

Journal Entries:

1. Record share of profit:

2. Record dividend received:

Carrying amount of investment increases by net $80,000.

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🔄 6. Dividends

• Dividends received from subsidiaries, associates, or joint ventures:

  • Cost or fair value method: Recognized as income.

  • Equity method: Reduces carrying amount of investment.

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📉 7. Impairment

• If investment’s recoverable amount < carrying amount → recognize impairment loss in profit or loss.

• Applies regardless of measurement method (cost, fair value, or equity method).

• Equity method cannot be used to reverse impairment in SFS; fair value changes go through OCI or P/L depending on IFRS 9.

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⚖️ 8. Disclosures

Entities must disclose in SFS:

1. The measurement basis used for each investment.

2. Aggregate carrying amount of subsidiaries, associates, and joint ventures.

3. Dividends received from these investments.

4. Changes in ownership interests during the period.

5. Restrictions on the ability to transfer funds (e.g., dividends, loans).

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📋 9. Summary Table

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🧩 10. Key Points to Remember

• SFS are not consolidated; focus is on presentation of investments.

• Measurement can be cost, fair value, or equity method — consistent application required.

• Dividends received treated differently depending on measurement method.

• Impairment must be recognized if recoverable amount < carrying amount.

• Disclosures ensure transparency of investment type, measurement, and restrictions.

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✅ 11. Quick Example – Comparison