IAS 27: Separate financial statements
How a parent or investor shows its investments in subsidiaries, joint ventures and associates in its own (separate) accounts.
ACCA exams this helps with: FR Financial Reporting SBR Strategic Business Reporting See the ACCA map
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What it is: A short standard for the parent’s own accounts, not the group accounts. It says how to show investments in subsidiaries, joint ventures and associates there.
The key idea: in its separate accounts the parent can show each category of investment at cost, under IFRS 9 (fair value), or using the equity method. Dividends received are income.
History. The old IAS 27 covered both consolidated and separate accounts. Since 2013 consolidation has been in IFRS 10, and IAS 27 deals only with separate financial statements.
Key words
- Separate financial statements
- Accounts presented by an entity in which it may choose to account for its investments in subsidiaries, joint ventures and associates at cost, under IFRS 9 or by the equity method.Example: The parent company’s own statement of financial position.
- Consolidated financial statements
- The group’s accounts, presenting the parent and subsidiaries as a single economic entity (IFRS 10).Example: The group accounts in the annual report.
- Investment entity
- An entity whose business is investing for capital growth or investment income, measuring its investments at fair value. It measures subsidiaries at fair value through profit or loss.Example: A private equity fund.
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Accounting for investments
| Option | Effect |
|---|---|
| Cost | Shown at cost (less impairment). Dividends received are income in profit or loss. |
| IFRS 9 | Shown at fair value. Dividends are income. |
| Equity method (IAS 28) | Cost plus share of post-acquisition profits. Dividends reduce the investment. |
- The same method must be used for each category of investment (subsidiaries, joint ventures, associates).
- Investments classified as held for sale follow IFRS 5.
- Dividends from a subsidiary, joint venture or associate are recognised in profit or loss when the right to receive them is established (unless the equity method is used).
- IAS 27 doesn’t say who must prepare separate accounts. That is up to local law (in the UK the Companies Act requires the parent’s own balance sheet).
Disclosures
The fact that the statements are separate financial statements, a list of significant investments (name, place of business, ownership %) and the method used. A parent using the exemption from consolidation also says so and names the parent that publishes IFRS consolidated accounts.
Worked example
P buys 80% of S for £400,000. In the year S makes a profit of £50,000 and pays a dividend of £20,000, of which P receives £16,000.
| In P’s separate accounts | Cost method £ | Equity method £ |
|---|---|---|
| Investment in S at the year end | 400,000 | 400,000 + 80% × 50,000 − 16,000 = 424,000 |
| Income in P’s profit or loss | 16,000 dividend income | 40,000 share of profit |
In the group accounts, S is consolidated line by line under IFRS 10 regardless of which method P uses in its own accounts, and the intragroup dividend is eliminated.
Practice questions
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