Definition of the net investment

Learning objectives

• Identify a monetary item that forms part of the net investment (settlement neither planned nor likely to occur in the foreseeable future).L3, L4

Normative references

• IAS 21 §15A monetary item receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, part of the entity's net investment in that foreign operation and is accounted for in accordance with paras. 32 and 33; such items may include long-term receivables or loans, but never trade receivables or trade payables. Para. 15A specifies that the item may be held by or owed by any subsidiary of the group.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• The parent company Brandel has granted its foreign subsidiary a loan of 2,000,000 dollars. Management hesitates: it envisages repayment in three years, with no firm commitment, while the subsidiary needs this financing for its activities. Write a note determining whether this loan is part of the net investment in the foreign operation, separating case facts, rule and judgement.L4