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FRSC Adopts Guidance on Distributions of Non-cash Assets to Owners

The Financial Reporting Standards Council (FRSC) approved the adoption of IFRIC Interpretation 17, Distributions of Non-cash Assets to Owners, as Philippine Interpretation IFRIC–17, Distributions of Non-cash Assets to Owners. The Interpretation was issued by the International Financial Reporting Interpretations Committee (IFRIC), the interpretative arm of the International Accounting Standards Board (IASB). It will standardize practice in the accounting treatment of distribution of non-cash assets to owners.

Existing International Financial Reporting Standards (IFRSs) do not address how an entity should measure distributions of assets other than cash when it pays dividends to its owners. At present, the dividend payable is sometimes recognized at the carrying amount of the assets to be distributed and sometimes at their fair value. As a result, significant diversity in practice has developed and the IFRIC was asked to provide guidance.

The IFRIC released a draft Interpretation in January 2008 (exposed for comment by the FRSC in February 2008) and in the light of the responses finalized the Interpretation. The Interpretation clarifies that:

  • a dividend payable should be recognized when the dividend is appropriately authorized and is no longer at the discretion of the entity.
  • an entity should measure the dividend payable at the fair value of the net assets to be distributed.
    an entity should recognize the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss.

The Interpretation also requires an entity to provide additional disclosures if the net assets being held for distribution to owners meet the definition of a discontinued operation. The Interpretation applies to pro rata distributions of non-cash assets except for common control transactions.

The Interpretation is effective for annual periods beginning on or after 1 July 2009. Earlier application is permitted. Because of the difficulty that entities would face in recognizing past distributions at their fair values, the Interpretation will be applied prospectively.