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PAS 27, Separate Financial Statements

- PAS 27 prescribes the accounting and disclosure requirements for investments in subsidiaries, associates and joint ventures in separate financial statements. It allows investments to be measured using the cost method, fair value method, or equity method. - Under the cost method, investments are initially measured at cost and subsequently measured at cost less impairment. Dividends are recognized in profit or loss when the right to receive dividends is established. - Under the fair value method using PFRS 9, investments are initially measured at cost and subsequently measured at fair value with changes recognized in profit or loss or other comprehensive income. Dividends are recognized in profit or loss when the right to receive dividends is established.

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211 views13 pages

PAS 27, Separate Financial Statements

- PAS 27 prescribes the accounting and disclosure requirements for investments in subsidiaries, associates and joint ventures in separate financial statements. It allows investments to be measured using the cost method, fair value method, or equity method. - Under the cost method, investments are initially measured at cost and subsequently measured at cost less impairment. Dividends are recognized in profit or loss when the right to receive dividends is established. - Under the fair value method using PFRS 9, investments are initially measured at cost and subsequently measured at fair value with changes recognized in profit or loss or other comprehensive income. Dividends are recognized in profit or loss when the right to receive dividends is established.

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PAS 27, Separate Financial Statements

Module 2

Instructor: Mr. Almario G. Parco, Jr., CPA, MBA


Intended Learning Outcomes
• Describe the applicability of PAS 27 (Section 9 for PFRS for SMEs)
• Describe the measurement bases allowed under PAS 27 (Section 9 for PFRS for SMEs)
Introduction
• PAS 27 prescribes the accounting and disclosure requirements for investments in subsidiaries, associates and
joint ventures when an entity prepares separate financial statements.
• PAS 27 does not mandate which entities should produce separate financial statements. PAS 27 is applied when
an entity chooses, or is required by law, to present separate financial statements that comply with PFRSs.
• Separate financial statements are those presented in addition to:
 a. consolidated financial statements; or
 b. the financial statements of an entity with an investment in associate or joint venture that is accounted for using equity
method in accordance with PAS 28 Investments in Associates and Joint Ventures.

• The financial statements of an entity that does not have an investment in


subsidiary, associate or joint venturer are not separate financial
statements. Entities exempted from preparing consolidated financial
statements present separate financial statements as their only financial
statements.
Preparation of Separate financial
statements
• Separate financial statements are prepared in accordance with all applicable PFRSs,
except that investments in subsidiaries, associates or joint ventures are accounted for
either:
• a. at cost,
• b. in accordance with PFRS 9 Financial Instruments, or
• c. using the equity method under PAS 28 Investments in Associates and Joint Ventures
• The entity applies the same accounting for each investment category (i.e., subsidiaries,
associates, and joint ventures).
Cost Method
• When an investment in equity securities is accounted for at cost:
• a. The investment is initially measured at the transaction price plus transaction costs
directly related to the acquisition and subsequently measured at cost. Changes in fair
values subsequent to acquisition date are ignored.
• b. Dividends from the investment are recognized in profit or loss when the entity's right
to receive the dividends is established.
• c. The entity shall not recognize any share from the profit of the investee.
Fair value method
• Under PFRS 9 Financial Instruments, investments in equity instruments are either accounted
for at fair value with changes in fair value recognized through profit or loss (FVPL) or
through other comprehensive income (FVOCI).
• When an investment in equity securities is accounted at fair value in accordance with PFRS
9:

a. The investment is initially measured at the transaction price plus, in the case of FVOCI,
transaction costs directly related to the acquisition. Transaction costs incurred on
investments classified as FVPL are expensed immediately.

b. The investment is subsequently measured at fair value. Changes in fair value are recognized
in profit or loss for FVPL and recognized in other comprehensive income for FVOCI.

c. Dividends from the investment are recognized in profit or loss when the entity's right to
receive the dividends is established.

d. The entity shall not recognize any share from the profit of the investee.
Fair value method
• Investments classified as held for sale (or included in a disposal group classified as
'held for sale') are accounted for in accordance with PFRS 5 Non-current Assets Held
for Sale and Discontinued Operations. The measurement of investments accounted for
in accordance with PFRS 9 is not changed in such circumstances.
• If an entity elects, in accordance with PAS 28 Investments in Associates and Joint
Ventures, to measure its investments in associates or joint ventures at fair value through
profit or loss (FVPL) in accordance with PFRS 9, it shall also account for those
investments in the same way in its separate financial statements.
Equity Method
Equity method Under the equity method, the investment is initially recognized at cost and
subsequently adjusted for the investor's share in the changes in the investee's equity.

Dividends

Dividends from a subsidiary, associate or joint venture are recognized in profit or loss
when the entity's right to receive the dividends is established, except when the investment
is accounted for using the equity method, in which case the dividends are recognized as
deduction to the carrying amount of the investment.
Microsoft Excel
Worksheet
Section 9 Consolidated and Separate
Financial Statements
Separate financial statements
• The PFRS for SMEs requires a parent to present consolidated financial statements but
does not require a parent to present separate financial statements.
• Separate financial statements are a second set of financial statements presented by an
entity in addition to any of the following:
• a. consolidated financial statements prepared by a parent,
• b. financial statements prepared by a parent exempted from preparing consolidated
financial statements, or
• c. financial statements prepared by an entity that is not a parent but is an investor in an
associate or has a venturer's interest in a joint venture.
Accounting policy election
• Investments in subsidiaries, associates and jointly controlled entities are accounted for
in the separate financial statements either

a. at cost less impairment,

b. at fair value with changes in fair value recognized in profit or loss, or

c. using the equity method


• The entity shall apply the same accounting policy for all investments in a single class
(subsidiaries, associates or jointly controlled entities), but it can elect different policies
for different classes.
Combined financial statements
Combined financial statements are a single set of financial statements of two or more
entities under common control. The PFRS for SMEs does not require combined financial
statements to be prepared.

Intercompany transactions and balances shall be eliminated; profits or losses resulting


from intercompany transactions that are recognized in assets such as inventory and
property, plant and equipment shall be eliminated; the financial statements of the entities
included in the combined financial statements shall be prepared as of the same reporting
date unless it is impracticable to do so; and uniform accounting policies shall be followed
for like transactions and other events in similar circumstances.
• End of slides

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