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.
🧾 1. Scope
Applies to entities that:
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Prepare separate financial statements (not consolidated).
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Hold subsidiaries, associates, or joint ventures.
Separate financial statements are optional but must comply with IFRS.
💡 2. Key Definitions
| Term | Meaning |
|---|---|
| Separate Financial Statements (SFS) | Financial statements presenting investments in subsidiaries, associates, and joint ventures at cost, fair value, or using the equity method. |
| Investment in Subsidiary | An entity controlled by the parent. |
| Investment in Associate / Joint Venture | Entity in which the investor has significant influence or joint control. |
⚙️ 3. Measurement Options for Investments in SFS
IAS 27 allows the following methods for investments in subsidiaries, associates, or joint ventures:
| Investment | Measurement Options | Notes |
|---|---|---|
| Subsidiary | Cost, Fair Value (IFRS 9), Equity Method | Choice depends on parent’s accounting policy |
| Associate / JV | Cost, Fair Value (IFRS 9), Equity Method | Consistent with investment type in consolidated accounts |
If equity method is used in SFS, it must be applied consistently.
🧮 4. Example 1 – Investment in Subsidiary at Cost
Scenario:
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Parent acquires 100% of Subsidiary X for $500,000.
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Dividend received = $50,000.
Journal Entries:
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Record investment at cost:
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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.
📊 5. Example 2 – Investment in Subsidiary Using Equity Method in SFS
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Subsidiary reports net profit = $100,000
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Dividend paid = $20,000
Journal Entries:
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Record share of profit:
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Record dividend received:
Carrying amount of investment increases by net $80,000.
🔄 6. Dividends
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Dividends received from subsidiaries, associates, or joint ventures:
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Cost or fair value method: Recognized as income.
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Equity method: Reduces carrying amount of investment.
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📉 7. Impairment
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If investment’s recoverable amount < carrying amount → recognize impairment loss in profit or loss.
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Applies regardless of measurement method (cost, fair value, or equity method).
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Equity method cannot be used to reverse impairment in SFS; fair value changes go through OCI or P/L depending on IFRS 9.
⚖️ 8. Disclosures
Entities must disclose in SFS:
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The measurement basis used for each investment.
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Aggregate carrying amount of subsidiaries, associates, and joint ventures.
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Dividends received from these investments.
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Changes in ownership interests during the period.
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Restrictions on the ability to transfer funds (e.g., dividends, loans).
📋 9. Summary Table
| Topic | Cost Method | Fair Value (IFRS 9) | Equity Method |
|---|---|---|---|
| Initial Recognition | Purchase cost | Purchase cost | Purchase cost |
| Profit/Loss Recognition | Dividend income only | Changes in FV recognized in P/L or OCI | Share of investee’s profit/loss |
| Investment Carrying Amount | Constant unless impaired | Changes with fair value | Adjusted for share of profit/loss & dividends |
| Dividend Received | Income | No effect on carrying amount | Reduces carrying amount |
🧩 10. Key Points to Remember
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SFS are not consolidated; focus is on presentation of investments.
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Measurement can be cost, fair value, or equity method — consistent application required.
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Dividends received treated differently depending on measurement method.
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Impairment must be recognized if recoverable amount < carrying amount.
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Disclosures ensure transparency of investment type, measurement, and restrictions.
✅ 11. Quick Example – Comparison
| Investment | Method | Dividend | Share of Profit | Carrying Amount Effect |
|---|---|---|---|---|
| Subsidiary X | Cost | $50,000 | $100,000 | +0 |
| Subsidiary Y | Equity | $20,000 | $100,000 | +80,000 |
| Associate Z | Fair Value | – | – | FV adjustment through P/L/OCI |