Contribution of non-monetary assets

Learning objectives

• Assess the gain or loss recognised when an investor contributes non-monetary assets to an associate in exchange for an equity interest.L3

Normative references

• IAS 28 §30The gain or loss resulting from the contribution of non-monetary assets to an associate or a joint venture in exchange for an equity interest is accounted for under para. 28, unless the contribution lacks commercial substance as described in IAS 16: the gain or loss is then regarded as unrealised and is not recognised, unless para. 31 also applies; such unrealised gains and losses are eliminated against the equity-accounted investment and are not presented as deferred gains or losses. In its published wording, the paragraph refers to assets that do not constitute a business as defined in IFRS 3 (restriction introduced by the deferred 2014 amendments, para. 45C).
• IAS 28 §31If, in addition to an equity interest in the associate or joint venture, the entity receives monetary or non-monetary assets on the contribution, it recognises in full in profit or loss the portion of the gain or loss on the contribution that relates to the assets received. The full gain or loss on a downstream transaction involving a business is dealt with in paras. 31A and 31B, added by the deferred 2014 amendments (para. 45C).

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

2 questions

• Alba SA contributes to Brise SA, its associate, land that does not constitute a business, in exchange for an interest in Brise. What principle governs the treatment of the gain or loss on that contribution in Alba's financial statements?L3
• Alba SA contributes to Brise SA, its associate, machines that do not constitute a business, in exchange for a 25% interest in Brise. A colleague recognises the 200,000 gain on that contribution in profit or loss with no elimination at all. What is the error?L3