The entity should account for its investment at the net carrying amount of the assets under previous GAAP (that is, 350 million) without recognizing any impairment loss. According to IFRS 280, when an entity adopts IFRS for the first time and previously accounted for its interest in a joint venture using proportionate consolidation, it should initially recognize its investment in the joint venture at the carrying amount it had determined under its previous GAAP, which is 350 million in this case. Since the transition to the equity method is a change in accounting policy, any difference between the carrying amount under previous GAAP and the impaired value (275 million) is not recognized as an impairment loss but rather as part of the adjustment to conform to the new presentation requirements. Therefore, the correct answer is that Entity F should recognize its investment at 275 million and recognize an impairment loss of 75 million in retained earnings.
IFRS Transition: Adjusting Joint Venture Investment on Switching to Equity Method
Entity F is a first-time adopter. Under previous GAAP, Entity F accounted for its interest in a joint venture using proportionate consolidation. In accordance with IFRS, joint ventures shall be accounted for using the equity method. The aggregate carrying amount of the assets and liabilities of the joint venture is 350 million; the impairment test made at the transition date valued its investment at 275 million. How should the entity account for its investment in the joint venture as at the date of transition?
The entity should account for its investment at the net carrying amount of the assets under previous GAAP (that is, 350 million) without recognizing any impairment loss.
The entity should account for its investment at 275 million and recognize an impairment of 75 million in retained earnings.
The entity should recognize its investment at 275 million and recognize an impairment loss of 75 million in other comprehensive income.
The entity should recognize its investment at 275 million and recognize an impairment loss of 75 million in profit or loss.
