Entity D is a first-time adopter in 20X9. Under IFRS, it is required to consolidate Entity K, a subsidiary that it did not previously consolidate under other GAAP. Entity K had not yet adopted IFRS. Which of the following options could Entity D use to account for its investment in Entity K in its consolidated financial statements?
A. Entity D shall measure the assets and liabilities of the subsidiary at the same carrying amounts of Entity K, after adjusting for consolidation.
B. Entity D shall measure the assets and liabilities of the subsidiary at the fair value of Entity K, after adjusting for consolidation.
C. Entity D shall measure the assets and liabilities of the subsidiary at the same carrying amounts of Entity K with no adjustment.
D. Entity D shall adjust the carrying amounts of the subsidiary's assets and liabilities to the amounts that IFRS would require in the subsidiary's statement of financial position.
When an entity adopts IFRS for the first time and needs to consolidate a subsidiary that was not previously consolidated under other GAAP, it should adjust the carrying amounts of the subsidiary's assets and liabilities to the amounts that IFRS would require in the subsidiary's statement of financial position. Therefore, the appropriate accounting treatment for Entity D's investment in Entity K in its consolidated financial statements upon the first adoption of IFRS would be as follows:
D. Entity D shall adjust the carrying amounts of the subsidiary's assets and liabilities to the amounts that IFRS would require in the subsidiary's statement of financial position.
Hence, option D is the correct approach for Entity D to follow when consolidating Entity K under IFRS for the first time.
