This exposure draft proposes to allow a parent, at its date of transition to IFRSs, to use a deemed cost for an investment in a subsidiary. The deemed cost would be determined using either the carrying amount of the net assets of the subsidiary, or its fair value, at that date. Is this appropriate? If not, why?

The G100 supports the proposal to use deemed cost for an investment in a subsidiary in these cases at the date of transition and not cost determined in accordance with the previous GAAP for the reasons specified on BC 4. We believe that the determination of deemed cost should be a matter of judgment depending on the circumstances in each case. As such fair value, if reliably determinable, could be used in respect of some subsidiaries while it may be appropriate to use the carrying amount of net assets in other circumstances for other subsidiaries.
 

uch a restatement would be tantamount to restating the original business combination, requiring judgements by management about past conditions after the outcome of the transaction is known.

This Exposure Draft proposes a simplified approach to determining the pre-acquisition accumulated profits of a subsidiary for the purpose of the cost method in IAS 27. Is this appropriate? If not, why?

The G100 supports the proposed treatment of distributions from pre-acquisition retained earnings and reserves as a deduction from the cost of the investment in a subsidiary as it is, in substance, a return of part of the purchase price. While this may lead to some restatements it should not result in a change in the difference between the cost of the investment and the investor’s share of the net assets acquired. The proposed approach is a reasonable pragmatic compromise which will help smooth the transition to IFRSs.