Exposure Draft
Investment Entities
(Amendments to Ind AS 110,
Ind AS 112 and Ind AS 27)
(Last date for Comments: December 13, 2013)
Issued by
Accounting Standards Board
The Institute of Chartered Accountants of India
Exposure Draft
Investment Entities
Amendments to Ind AS 110, Ind AS 112 and Ind AS 27
Following is the Exposure Draft of Investment Entities (Amendments to Ind AS 110, Ind AS 112 and
Ind As 27) issued by the Accounting Standards Board of The Institute of Chartered Accountants of
India, for comments. The Board invites comments on any specific aspect of the Exposure Draft.
Comments are most helpful if they indicate the specific paragraph or group of paragraphs to which
they relate, contain a clear rationale and, where applicable, provide a suggestion for alternative
wording.
Comment should be submitted in writing to the Secretary, Accounting Standards Board, The Institute
of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New
Delhi 110 002, so as to be received not later than December 13, 2013. Comments can also be sent
by email to asb@icai.in or commentsasb@icai.in
(The Exposure Draft of the Indian Accounting Standard includes paragraphs set in bold type and
plain type, which have equal authority. Paragraphs in bold type indicate the main principles. This
Exposure Draft of the Indian Accounting Standard should be read in the context of its objective and
the Preface to the Statements on Accounting Standards)
Amendments to Ind AS 110 Consolidated Financial Statements
Paragraphs 2 and 4 are amended. New text is underlined and deleted text is struck through.
2 To meet the objective in paragraph 1, this Ind AS:
(a) ...
(c) sets out how to apply the principle of control to identify whether an investor controls an
investee and therefore must consolidate the investee; and
(d) sets out the accounting requirements for the preparation of consolidated financial
statements.; and
(e) defines an investment entity and sets out an exception to consolidating particular
subsidiaries of an investment entity.
3 ...
4 An entity that is a parent shall present consolidated financial statements. This Ind AS applies
to all entities, except as follows:
(a) ...
(c) an investment entity need not present consolidated financial statements if it is
required, in accordance with paragraph 31 of this Ind AS, to measure all of its
subsidiaries at fair value through profit or loss.
After paragraph 26, headings and paragraphs 2733 are added.
Determining whether an entity is an investment entity
27 A parent shall determine whether it is an investment entity. An investment entity is an
entity that:
(a) obtains funds from one or more investors for the purpose of providing those
investor(s) with investment management services;
(b) commits to its investor(s) that its business purpose is to invest funds solely for
returns from capital appreciation, investment income, or both; and
(c) measures and evaluates the performance of substantially all of its investments on
a fair value basis.
Paragraphs B85AB85M provide related application guidance.
28 In assessing whether it meets the definition described in paragraph 27, an entity shall consider
whether it has the following typical characteristics of an investment entity:
(a) it has more than one investment (see paragraphs B85OB85P);
(b) it has more than one investor (see paragraphs B85QB85S);
(c) it has investors that are not related parties of the entity (see paragraphs B85TB85U);
and
(d) it has ownership interests in the form of equity or similar interests(see paragraphs
B85VB85W).
The absence of any of these typical characteristics does not necessarily disqualify an entity from
being classified as an investment entity. An investment entity that does not have all of these typical
characteristics provides additional disclosure required by paragraph 9A of Ind AS 112 Disclosure of
Interests in Other Entities.
29 If facts and circumstances indicate that there are changes to one or more of the three elements
that make up the definition of an investment entity, as described in paragraph 27, or the
typical characteristics of an investment entity, as described in paragraph 28, a parent shall
reassess whether it is an investment entity.
30 A parent that either ceases to be an investment entity or becomes an investment entity shall
account for the change in its status prospectively from the date at which the change in status
occurred (see paragraphs B100B101).
Investment entities: exception to consolidation
31 Except as described in paragraph 32, an investment entity shall not consolidate its
subsidiaries or apply Ind AS 103 when it obtains control of another entity. Instead, an
investment entity shall measure an investment in a subsidiary at fair value through
profit or loss in accordance with Ind AS 39.
32 Notwithstanding the requirement in paragraph 31, if an investment entity has a subsidiary
that provides services that relate to the investment entity's investment activities (see
paragraphs B85CB85E), it shall consolidate that subsidiary in accordance with paragraphs
1926 of this Ind AS and apply the requirements of Ind AS 103 to the acquisition of any
such subsidiary.
33 A parent of an investment entity shall consolidate all entities that it controls, including those
controlled through an investment entity subsidiary, unless the parent itself is an investment
entity.
In Appendix A, a new definition is added. New text is underlined.
group ...
investment An entity that:
entity (a) obtains funds from one or more investors for the purpose of
providing those investor(s) with investment management services;
(b) commits to its investor(s) that its business purpose is to invest funds
solely for returns from capital appreciation, investment income, or
both; and
(c) measures and evaluates the performance of substantially all of its
investments on a fair value basis.
In Appendix B, headings and paragraphs B85AB85W are added.
Determining whether an entity is an investment entity
B85A An entity shall consider all facts and circumstances when assessing whether it is an
investment entity, including its purpose and design. An entity that possesses the three
elements of the definition of an investment entity set out in paragraph 27 is an investment
entity. Paragraphs B85BB85M describe the elements of the definition in more detail.
Business purpose
B85B The definition of an investment entity requires that the purpose of the entity is to invest
solely for capital appreciation, investment income (such as dividends, interest or rental
income), or both. Documents that indicate what the entity's investment objectives are, such
as the entity's offering memorandum, publications distributed by the entity and other
corporate or partnership documents, will typically provide evidence of an investment
entity's business purpose. Further evidence may include the manner in which the entity
presents itself to other parties (such as potential investors or potential investees); for
example, an entity may present its business as providing medium-term investment for
capital appreciation. In contrast, an entity that presents itself as an investor whose objective
is to jointly develop, produce or market products with its investees has a business purpose
that is inconsistent with the business purpose of an investment entity, because the entity will
earn returns from the development, production or marketing activity as well as from its
investments (see paragraph B85I).
B85C An investment entity may provide investment-related services (eg investment advisory
services, investment management, investment support and administrative services), either
directly or through a subsidiary, to third parties as well as to its investors, even if those
activities are substantial to the entity.
B85D An investment entity may also participate in the following investment-related activities,
either directly or through a subsidiary, if these activities are undertaken to maximise the
investment return (capital appreciation or investment income) from its investees and do not
represent a separate substantial business activity or a separate substantial source of income
to the investment entity:
(a) providing management services and strategic advice to an investee; and
(b) providing financial support to an investee, such as a loan, capital commitment or
guarantee.
B85E If an investment entity has a subsidiary that provides investment-related services or
activities, such as those described in paragraphs B85CB85D, to the entity or other parties,
it shall consolidate that subsidiary in accordance with paragraph 32.
Exit strategies
B85F An entity's investment plans also provide evidence of its business purpose. One feature that
differentiates an investment entity from other entities is that an investment entity does not
plan to hold its investments indefinitely; it holds them for a limited period. Because equity
investments and non-financial asset investments have the potential to be held indefinitely,
an investment entity shall have an exit strategy documenting how the entity plans to realise
capital appreciation from substantially all of its equity investments and non-financial asset
investments. An investment entity shall also have an exit strategy for any debt instruments
that have the potential to be held indefinitely, for example perpetual debt investments. The
entity need not document specific exit strategies for each individual investment but shall
identify different potential strategies for different types or portfolios of investments,
including a substantive time frame for exiting the investments. Exit mechanisms that are
only put in place for default events, such as a breach of contract or non-performance, are not
considered exit strategies for the purpose of this assessment.
B85G Exit strategies can vary by type of investment. For investments in private equity securities,
examples of exit strategies include an initial public offering, a private placement, a trade
sale of a business, distributions (to investors) of ownership interests in investees and sales of
assets (including the sale of an investee's assets followed by a liquidation of the investee).
For equity investments that are traded in a public market, examples of exit strategies include
selling the investment in a private placement or in a public market. For real estate
investments, an example of an exit strategy includes the sale of the real estate through
specialized property dealers or the open market.
B85H An investment entity may have an investment in another investment entity that is formed in
connection with the entity for legal, regulatory, tax or similar business reasons. In this case,
the investment entity investor need not have an exit strategy for that investment, provided
that the investment entity investee has appropriate exit strategies for its investments.
Earnings from investments
B85I An entity is not investing solely for capital appreciation, investment income, or both, if the
entity or another member of the group containing the entity (ie the group that is controlled
by the investment entity's ultimate parent) obtains, or has the objective of obtaining, other
benefits from the entity's investments that are not available to other parties that are not
related to the investee. Such benefits include:
(a) the acquisition, use, exchange or exploitation of the processes, assets or technology of
an investee. This would include the entity or another group member having
disproportionate, or exclusive, rights to acquire assets, technology, products or
services of any investee; for example, by holding an option to purchase an asset from
an investee if the asset's development is deemed successful;
(b) joint arrangements (as defined in Ind AS 111) or other agreements between the entity
or another group member and an investee to develop, produce, market or provide
products or services;
(c) financial guarantees or assets provided by an investee to serve as collateral for
borrowing arrangements of the entity or another group member (however, an
investment entity would still be able to use an investment in an investee as collateral
for any of its borrowings);
(d) an option held by a related party of the entity to purchase, from that entity or another
group member, an ownership interest in an investee of the entity;
(e) except as described in paragraph B85J, transactions between the entity or another
group member and an investee that:
(i) are on terms that are unavailable to entities that are not related parties of either
the entity, another group member or the investee;
(ii) are not at fair value; or
(iii) represent a substantial portion of the investee's or the entity's business
activity, including business activities of other group entities.
B85J An investment entity may have a strategy to invest in more than one investee in the same
industry, market or geographical area in order to benefit from synergies that increase the
capital appreciation and investment income from those investees. Notwithstanding
paragraph B85I(e), an entity is not disqualified from being classified as an investment entity
merely because such investees trade with each other.
Fair value measurement
B85K An essential element of the definition of an investment entity is that it measures and evaluates
the performance of substantially all of its investments on a fair value basis because using fair
value results in more relevant information than, for example, consolidating its subsidiaries or
using the equity method for its interests in associates or joint ventures. In order to
demonstrate that it meets this element of the definition, an investment entity:
(a) provides investors with fair value information and measures substantially all of its
investments at fair value in its financial statements whenever fair value is required or
permitted in accordance with Ind ASs; and
(b) reports fair value information internally to the entity's key management personnel (as
defined in Ind AS 24), who use fair value as the primary measurement attribute to
evaluate the performance of substantially all of its investments and to make
investment decisions.
B85L In order to meet the requirement in B85K(a), an investment entity would:
(a) [Refer Appendix 1]
(b) elect the exemption from applying the equity method in Ind AS 28 for its investments
in associates and joint ventures; and
(c) measure its financial assets at fair value using the requirements in Ind AS 39.
B85M [Refer Appendix 1]
Typical characteristics of an investment entity
B85N In determining whether it meets the definition of an investment entity, an entity shall consider
whether it displays the typical characteristics of one (see paragraph 28). The absence of one or
more of these typical characteristics does not necessarily disqualify an entity from being
classified as an investment entity but indicates that additional judgement is required in
determining whether the entity is an investment entity.
More than one investment
B85O An investment entity typically holds several investments to diversify its risk and maximise its
returns. An entity may hold a portfolio of investments directly or indirectly, for example by
holding a single investment in another investment entity that itself holds several investments.
B85P There may be times when the entity holds a single investment. However, holding a single
investment does not necessarily prevent an entity from meeting the definition of an
investment entity. For example, an investment entity may hold only a single investment when
the entity:
a) is in its start-up period and has not yet identified suitable investments and, therefore,
has not yet executed its investment plan to acquire several investments;
b) has not yet made other investments to replace those it has disposed of;
c) is established to pool investors' funds to invest in a single investment when that
investment is unobtainable by individual investors (eg when the required minimum
investment is too high for an individual investor); or
d) is in the process of liquidation.
More than one investor
B85Q Typically, an investment entity would have several investors who pool their funds to gain
access to investment management services and investment opportunities that they might not
have had access to individually. Having several investors would make it less likely that the
entity, or other members of the group containing the entity, would obtain benefits other than
capital appreciation or investment income (see paragraph B85I).
B85R Alternatively, an investment entity may be formed by, or for, a single investor that represents
or supports the interests of a wider group of investors (eg a pension fund, government
investment fund or family trust).
B85S There may also be times when the entity temporarily has a single investor. For example, an
investment entity may have only a single investor when the entity:
(a) is within its initial offering period, which has not expired and the entity is actively
identifying suitable investors;
(b) has not yet identified suitable investors to replace ownership interests that have been
redeemed; or
(c) is in the process of liquidation
Unrelated investors
B85T Typically, an investment entity has several investors that are not related parties (as defined
in Ind AS 24) of the entity or other members of the group containing the entity. Having
unrelated investors would make it less likely that the entity, or other members of the group
containing the entity, would obtain benefits other than capital appreciation or investment
income (see paragraph B85I).
B85U However, an entity may still qualify as an investment entity even though its investors are
related to the entity. For example, an investment entity may set up a separate `parallel' fund
for a group of its employees (such as key management personnel) or other related party
investor(s), which mirrors the investments of the entity's main investment fund. This
`parallel' fund may qualify as an investment entity even though all of its investors are
related parties.
Ownership interests
B85V An investment entity is typically, but is not required to be, a separate legal entity. Ownership
interests in an investment entity are typically in the form of equity or similar interests (eg
partnership interests), to which proportionate shares of the net assets of the investment entity
are attributed. However, having different classes of investors, some of which have rights
only to a specific investment or groups of investments or which have different proportionate
shares of the net assets, does not preclude an entity from being an investment entity.
B85W In addition, an entity that has significant ownership interests in the form of debt that, in
accordance with other applicable Ind ASs, does not meet the definition of equity, may still
qualify as an investment entity, provided that the debt holders are exposed to variable
returns from changes in the fair value of the entity's net assets.
In Appendix B, a heading and paragraphs B100B101 are added.
Accounting for a change in investment entity status
B100 When an entity ceases to be an investment entity, it shall apply Ind AS 103 to any subsidiary
that was previously measured at fair value through profit or loss in accordance with
paragraph 31. The date of the change of status shall be the deemed acquisition date. The fair
value of the subsidiary at the deemed acquisition date shall represent the transferred deemed
consideration when measuring any goodwill or gain from a bargain purchase that arises
from the deemed acquisition. All subsidiaries shall be consolidated in accordance with
paragraphs 1924 of this Ind AS from the date of change of status.
B101 When an entity becomes an investment entity, it shall cease to consolidate its subsidiaries at
the date of the change in status, except for any subsidiary that shall continue to be
consolidated in accordance with paragraph 32. The investment entity shall apply the
requirements of paragraphs 25 and 26 to those subsidiaries that it ceases to consolidate as
though the investment entity had lost control of those subsidiaries at that date.
In Appendix C, new paragraph C1B is added.
C1B Investment Entities (Amendments to Ind AS 110, Ind AS 112 and Ind AS 27), amended
paragraphs 2, 4 and Appendix A and added paragraphs 2733, B85AB85W, B100B101.
An entity shall apply those amendments for annual periods beginning on or after
_____________________.
Appendix
Consequential amendments to other Standards
This appendix sets out amendments to other Standards that are a consequence of the Investment
Entities (Amendments to Ind AS 110, Ind AS 112 and Ind AS 27).
Ind AS 101 First-time Adoption of Indian Accounting Standards
Appendix C is amended. New text is underlined.
This appendix is an integral part of the Ind AS. An entity shall apply the following requirements to
business combinations that the entity recognised before the date of transition to Ind ASs. This
Appendix should only be applied to business combinations within the scope of Ind AS 103 Business
Combinations.
In Appendix D, paragraphs D16D17 are amended. New text is underlined.
D16 If a subsidiary becomes a first-time adopter later than its parent, the subsidiary shall, in its
financial statements, measure its assets and liabilities at either:
(a) the carrying amounts that would be included in the parent's consolidated financial
statements, based on the parent's date of transition to Ind ASs, if no adjustments were
made for consolidation procedures and for the effects of the business combination in
which the parent acquired the subsidiary (this election is not available to a subsidiary
of an investment entity, as defined in Ind AS 110, that is required to be measured at
fair value through profit or loss); or
(b) ...
D17 However, if an entity becomes a first-time adopter later than its subsidiary (or associate or joint
venture) the entity shall, in its consolidated financial statements, measure the assets and
liabilities of the subsidiary (or associate or joint venture) at the same carrying amounts as in
the financial statements of the subsidiary (or associate or joint venture), after adjusting for
consolidation and equity accounting adjustments and for the effects of the business
combination in which the entity acquired the subsidiary. Notwithstanding this requirement, a
non-investment entity parent shall not apply the exception to consolidation that is used by any
investment entity subsidiaries.
In Appendix E, after paragraph E5, a heading and paragraph E6 is added.
Investment entities
E6 A first-time adopter that is a parent shall assess whether it is an investment entity, as defined
in Ind AS 110, on the basis of the facts and circumstances that exist at the date of transition
to Ind ASs.
Ind AS 103 Business Combinations
Paragraph 7 is amended and paragraph 2A is added. New text is underlined and deleted text is
struck through.
2A The requirements of this Standard do not apply to the acquisition by an investment entity, as
defined in Ind AS 110 Consolidated Financial Statements, of an investment in a subsidiary
that is required to be measured at fair value through profit or loss.
7 The guidance in Ind AS 110 Consolidated Financial Statements shall be used to identify the
acquirer ...
Ind AS 107 Financial Instruments: Disclosures
Paragraph 3 is amended. New text is underlined and deleted text is struck through.
3 This Ind AS shall be applied by all entities to all types of financial instruments, except:
(a) those interests in subsidiaries, associates or joint ventures that are accounted for in
accordance with Ind AS 110 Consolidated Financial Statements, Ind AS 27 Separate
Financial Statements or Ind AS 28 Investments in Associates and Joint Ventures.
However, in some cases, Ind AS 110, Ind AS 27 or Ind AS 28 require or permits an
entity to account for an interest in a subsidiary, associate or joint venture using Ind
AS 39; in those cases, entities shall apply the requirements of this Ind AS and, for
those measured at fair value, the requirements of Ind AS 113 Fair Value
Measurement. Entities shall also apply this Ind AS to all derivatives linked to
interests in subsidiaries, associates or joint ventures unless the derivative meets the
definition of an equity instrument in Ind AS 32.
Ind AS 7 Statement of Cash Flows
Paragraphs 42A and 42B are amended and paragraph 40A is added. New text is underlined and
deleted text is struck through.
40A An investment entity, as defined in Ind AS 110 Consolidated Financial Statements, need not
apply paragraphs 40(c) or 40(d) to an investment in a subsidiary that is required to be
measured at fair value through profit or loss.
42A Cash flows arising from changes in ownership interests in a subsidiary that do not result in a
loss of control shall be classified as cash flows from financing activities, unless the
subsidiary is held by an investment entity, as defined in Ind AS 110, and is required to be
measured at fair value through profit or loss.
42B Changes in ownership interests in a subsidiary that do not result in a loss of control, such as
the subsequent purchase or sale by a parent of a subsidiary's equity instruments, are
accounted for as equity transactions (see Ind AS 110 Consolidated Financial Statements),
unless the subsidiary is held by an investment entity and is required to be measured at fair
value through profit or loss. Accordingly, the resulting cash flows are classified in the same
way as other transactions with owners described in paragraph 17.
Ind AS 12 Income Taxes
Paragraphs 58 and 68C are amended. New text is underlined.
58 Current and deferred tax shall be recognised as income or an expense and included in profit
or loss for the period, except to the extent that the tax arises from:
(a) ...
(b) a business combination (other than the acquisition by an investment entity, as defined
in Ind AS 110 Consolidated Financial Statements, of a subsidiary that is required to be
measured at fair value through profit or loss) (see paragraphs 66 to 68).
68C As noted in paragraph 68A, the amount of the tax deduction (or estimated future tax
deduction, measured in accordance with paragraph 68B) may differ from the related
cumulative remuneration expense. Paragraph 58 of the Standard requires that current and
deferred tax should be recognised as income or an expense and included in profit or loss for
the period, except to the extent that the tax arises from (a) a transaction or event that is
recognised, in the same or a different period, outside profit or loss, or (b) a business
combination (other than the acquisition by an investment entity of a subsidiary that is
required to be measured at fair value through profit or loss). If the amount of the tax
deduction (or estimated future tax deduction) exceeds the amount of the related cumulative
remuneration expense, this indicates that the tax deduction relates not only to remuneration
expense but also to an equity item. In this situation, the excess of the associated current or
deferred tax should be recognised directly in equity.
Ind AS 24 Related Party Disclosures
Paragraphs 4 and 9 are amended. New text is underlined.
4 Related party transactions and outstanding balances with other entities in a group are
disclosed in an entity's financial statements. Intragroup related party transactions and
outstanding balances are eliminated, except for those between an investment entity and its
subsidiaries measured at fair value through profit or loss, in the preparation of consolidated
financial statements of the group.
9 The terms `control' and `investment entity', `joint control', and `significant influence'
are defined in Ind AS 110, Ind AS 111 Joint Arrangements and Ind AS 28 Investments
in Associates and Joint Ventures respectively and are used in this Standard with the
meanings specified in those Ind ASs.
Ind AS 32 Financial Instruments: Presentation
Paragraph 4 is amended. New text is underlined and deleted text is struck through.
4 This Standard shall be applied by all entities to all types of financial instruments except:
(a) those interests in subsidiaries, associates or joint ventures that are accounted for in
accordance with Ind AS 110 Consolidated Financial Statements, Ind AS 27 Separate
Financial Statements or Ind AS 28 Investments in Associates and Joint Ventures.
However, in some cases, Ind AS 110, Ind AS 27 or Ind AS 28 require or permits an entity
to account for an interest in a subsidiary, associate or joint venture using Ind AS 39; in
those cases, entities shall apply the requirements of this Standard. Entities shall also
apply this Standard to all derivatives linked to interests in subsidiaries, associates or joint
ventures.
Ind AS 34 Interim Financial Reporting
Paragraph 16A is amended. New text is underlined.
16A In addition to disclosing significant events and transactions in accordance with paragraphs
1515C, an entity shall include the following information, in the notes to its interim
financial statements, if not disclosed elsewhere in the interim financial report. The
information shall normally be reported on a financial year-to-date basis.
(a) ...
(k) for entities becoming, or ceasing to be, investment entities, as defined in Ind AS 110
Consolidated Financial Statements, the disclosures in Ind AS 112 Disclosure of Interests in
Other Entities paragraph 9B.
Ind AS 39 Financial Instruments: Recognition and Measurement
Paragraphs 2 and 80 are amended. New text is underlined and deleted text is struck through.
2 This Standard shall be applied by all entities to all types of financial instruments except:
(a) those interests in subsidiaries, associates and joint ventures that are accounted for in
accordance with Ind AS 110 Consolidated Financial Statements, Ind AS 27 Separate
Financial Statements or Ind AS 28 Investments in Associates and Joint Ventures.
However, in some cases, Ind AS 110, Ind AS 27 or Ind AS 28 require or permit an entity
to account for entities shall apply this Standard to an interest in a subsidiary, associate or
joint venture that according to Ind AS 27 or Ind AS 28 is accounted for under in
accordance with some or all of the requirements of this Standard. Entities shall also
apply this Standard to derivatives on an interest in a subsidiary, associate or joint
venture unless the derivative meets the definition of an equity instrument of the entity in
Ind AS 32 Financial Instruments: Presentation.
(b) ...
(g) any forward contract between an acquirer and a selling shareholder to buy or sell an
acquiree that will result in a business combination within the scope of Ind AS 103
Business Combinations at a future acquisition date. The term of the forward contract
should not exceed a reasonable period normally necessary to obtain any required
approvals and to complete the transaction.
80 ... It follows that hedge accounting can be applied to transactions between entities in the
same group only in the individual or separate financial statements of those entities and not
in the consolidated financial statements of the group, except for the consolidated financial
statements of an investment entity, as defined in Ind AS 110, where transactions between an
investment entity and its subsidiaries measured at fair value through profit or loss will not
be eliminated in the consolidated financial statements. ...
Amendments to Appendix 1 of Ind AS 110, "Consolidated Financial Statements"
The following point is added in Appendix 1
6. IFRS 10 requires all investments to be measured at fair value to qualify for the exemption from
consolidation available to an investment entity. Since, Ind AS 40, Investment Properties requires
all investment properties to be measured at cost initially and cost less depreciation subsequently,
sub- paragraph (a) of B85L, paragraph B85M and Example 3 of Illustrative Examples have been
deleted as these deal with investment property measured at fair value which is not relevant in the
Indian context.
The following section, Illustrative Examples, is inserted into Ind AS 110.
Illustrative Examples
These examples accompany, but are not part of, the Ind AS.
Example 1
IE1 An entity, Limited Partnership, is formed in 20X1 as a limited partnership with a 10-year
life. The offering memorandum states that Limited Partnership's purpose is to invest in
entities with rapid growth potential, with the objective of realising capital appreciation
over their life. Entity GP (the general partner of Limited Partnership) provides 1 per cent
of the capital to Limited Partnership and has the responsibility of identifying suitable
investments for the partnership. Approximately 75 limited partners, who are unrelated to
Entity GP, provide 99 per cent of the capital to the partnership.
IE2 Limited Partnership begins its investment activities in 20X1. However, no suitable
investments are identified by the end of 20X1. In 20X2 Limited Partnership acquires a
controlling interest in one entity, ABC Corporation. Limited Partnership is unable to
close another investment transaction until 20X3, at which time it acquires equity interests
in five additional operating companies. Other than acquiring these equity interests,
Limited Partnership conducts no other activities. Limited Partnership measures and
evaluates its investments on a fair value basis and this information is provided to Entity
GP and the external investors.
IE3 Limited Partnership has plans to dispose of its interests in each of its investees during the
10-year stated life of the partnership. Such disposals include the outright sale for cash, the
distribution of marketable equity securities to investors following the successful public
offering of the investees' securities and the disposal of investments to the public or other
unrelated entities.
Conclusion
IE4 From the information provided, Limited Partnership meets the definition of an investment
entity from formation in 20X1 to 31 December 20X3 because the following conditions
exist:
(a) Limited Partnership has obtained funds from the limited partners and is providing
those limited partners with investment management services;
(b) Limited Partnership's only activity is acquiring equity interests in operating
companies with the purpose of realising capital appreciation over the life of the
investments. Limited Partnership has identified and documented exit strategies for
its investments, all of which are equity investments; and
(c) Limited Partnership measures and evaluates its investments on a fair value basis
and reports this financial information to its investors.
IE5 In addition, Limited Partnership displays the following typical characteristics of an
investment entity:
(a) Limited Partnership is funded by many investors;
(b) its limited partners are unrelated to Limited Partnership; and
(c) ownership in Limited Partnership is represented by units of partnership interests
acquired through a capital contribution.
IE6 Limited Partnership does not hold more than one investment throughout the period.
However, this is because it was still in its start-up period and had not identified suitable
investment opportunities.
Example 2
IE7 High Technology Fund was formed by Technology Corporation to invest in technology
start-up companies for capital appreciation. Technology Corporation holds a 70 per cent
interest in High Technology Fund and controls High Technology Fund; the other 30 per
cent ownership interest in High Technology Fund is owned by 10 unrelated investors.
Technology Corporation holds options to acquire investments held by High Technology
Fund, at their fair value, which would be exercised if the technology developed by the
investees would benefit the operations of Technology Corporation. No plans for exiting
the investments have been identified by High Technology Fund. High Technology Fund
is managed by an investment adviser that acts as agent for the investors in High
Technology Fund.
Conclusion
IE8 Even though High Technology Fund's business purpose is investing for capital
appreciation and it provides investment management services to its investors, High
Technology Fund is not an investment entity because of the following arrangements and
circumstances:
(a) Technology Corporation, the parent of High Technology Fund, holds options to
acquire investments in investees held by High Technology Fund if the assets
developed by the investees would benefit the operations of Technology Corporation.
This provides a benefit in addition to capital appreciation or investment income; and
(b) the investment plans of High Technology Fund do not include exit strategies for its
investments, which are equity investments. The options held by Technology
Corporation are not controlled by High Technology Fund and do not constitute an
exit strategy.
Example 3
[Refer Appendix 1]
Example 4
IE12 An entity, Master Fund, is formed in 20X1 with a 10-year life. The equity of Master Fund
is held by two related feeder funds. The feeder funds are established in connection with
each other to meet legal, regulatory, tax or similar requirements. The feeder funds are
capitalised with a 1 per cent investment from the general partner and 99 per cent from
equity investors that are unrelated to the general partner (with no party holding a
controlling financial interest).
GP Third Party Third Party GP
1% 99% 99% 1%
Offshore
Domestic Feeder
Feeder
Master
Portfolio of
Investments
IE13 The purpose of Master Fund is to hold a portfolio of investments in order to generate
capital appreciation and investment income (such as dividends, interest or rental income).
The investment objective communicated to investors is that the sole purpose of the
Master-Feeder structure is to provide investment opportunities for investors in separate
market niches to invest in a large pool of assets. Master Fund has identified and
documented exit strategies for the equity and nonfinancial investments that it holds.
Master Fund holds a portfolio of short- and medium-term debt investments, some of
which will be held until maturity and some of which will be traded but Master Fund has
not specifically identified which investments will be held and which will be traded.
Master Fund measures and evaluates substantially all of its investments, on a fair value
basis. In addition, investors receive periodic financial information, on a fair value basis,
from the feeder funds. Ownership in both Master Fund and the feeder funds is
represented through units of equity.
Conclusion
IE14 Master Fund and the feeder funds each meet the definition of an investment entity. The
following conditions exist:
(a) both Master Fund and the feeder funds have obtained funds for the purpose of
providing investors with investment management services;
(b) the Master-Feeder structure's business purpose, which was communicated directly to
investors of the feeder funds, is investing solely for capital appreciation and
investment income and Master Fund has identified and documented potential exit
strategies for its equity and non-financial investments.
(c) although the feeder funds do not have an exit strategy for their interests in Master
Fund, the feeder funds can nevertheless be considered to have an exit strategy for
their investments because Master Fund was formed in connection with the feeder
funds and holds investments on behalf of the feeder funds; and
(d) the investments held by Master Fund are measured and evaluated on a fair value basis
and information about the investments made by Master Fund is provided to investors
on a fair value basis through the feeder funds.
IE15 Master Fund and the feeder funds were formed in connection with each other for legal,
regulatory, tax or similar requirements. When considered together, they display the
following typical characteristics of an investment entity:
(a) the feeder funds indirectly hold more than one investment because Master Fund
holds a portfolio of investments;
(b) although Master Fund is wholly capitalised by the feeder funds, the feeder funds are
funded by many investors who are unrelated to the feeder funds (and to the general
partner); and
(c) ownership in the feeder funds is represented by units of equity interests acquired
through a capital contribution.
Appendix
Consequential amendment to the guidance on implementing another Standard
This appendix contains an amendment to the guidance on implementing another Standard that is
necessary in order to ensure consistency with Investment Entities (Amendments to Ind AS 110, Ind
AS 112 and Ind AS 27) and the related amendments to other Ind ASs. Amended paragraphs are
shown with the new text underlined.
Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations
The paragraph above `Example 13' is amended. New text is underlined.
A subsidiary acquired with a view to sale is not exempt from consolidation in accordance with Ind
AS 110 Consolidated Financial Statements, unless the acquirer is an investment entity, as defined in
Ind AS 110, and is required to measure the investment in that subsidiary at fair value through profit
or loss. However, if it meets the criteria in paragraph 11, it is presented as a disposal group classified
as held for sale. Example 13 illustrates these requirements.
Example 13
...
Amendments to Ind AS 112 Disclosure of Interests in Other Entities
Paragraph 2 is amended. New text is underlined and deleted text is struck through.
2 To meet the objective in paragraph 1, an entity shall disclose:
(a) the significant judgements and assumptions it has made in determining:
(i) the nature of its interest in another entity or arrangement;, and in determining
(ii) the type of joint arrangement in which it has an interest (paragraphs 79);
(iii) that it meets the definition of an investment entity, if applicable (paragraph
9A); and
(b) ...
After paragraph 9, a heading and paragraphs 9A9B are added.
Investment entity status
9A When a parent determines that it is an investment entity in accordance with
paragraph 27 of Ind AS 110, the investment entity shall disclose information about
significant judgements and assumptions it has made in determining that it is an
investment entity. If the investment entity does not have one or more of the typical
characteristics of an investment entity (see paragraph 28 of Ind AS 110), it shall
disclose its reasons for concluding that it is nevertheless an investment entity.
9B When an entity becomes, or ceases to be, an investment entity, it shall disclose the change
of investment entity status and the reasons for the change. In addition, an entity that
becomes an investment entity shall disclose the effect of the change of status on the
financial statements for the period presented, including:
(a) the total fair value, as of the date of change of status, of the subsidiaries that cease to
be consolidated;
(b) the total gain or loss, if any, calculated in accordance with paragraph B101 of Ind
AS 110; and
(c) the line item(s) in profit or loss in which the gain or loss is recognised (if not
presented separately).
After paragraph 19, a heading and paragraphs 19A19G are added.
Interests in unconsolidated subsidiaries (investment entities)
19A An investment entity that, in accordance with Ind AS 110, is required to apply the
exception to consolidation and instead account for its investment in a subsidiary at fair
value through profit or loss shall disclose that fact.
19B For each unconsolidated subsidiary, an investment entity shall disclose:
(a) the subsidiary's name;
(b) the principal place of business (and country of incorporation if different from the
principal place of business) of the subsidiary; and
(c) the proportion of ownership interest held by the investment entity and, if different, the
proportion of voting rights held.
19C If an investment entity is the parent of another investment entity, the parent shall also
provide the disclosures in 19B(a)(c) for investments that are controlled by its investment
entity subsidiary. The disclosure may be provided by including, in the financial
statements of the parent, the financial statements of the subsidiary (or subsidiaries) that
contain the above information.
19D An investment entity shall disclose:
(a) the nature and extent of any significant restrictions (eg resulting from borrowing
arrangements, regulatory requirements or contractual arrangements) on the ability of
an unconsolidated subsidiary to transfer funds to the investment entity in the form of
cash dividends or to repay loans or advances made to the unconsolidated subsidiary
by the investment entity; and
(b) any current commitments or intentions to provide financial or other support to an
unconsolidated subsidiary, including commitments or intentions to assist the
subsidiary in obtaining financial support.
19E If, during the reporting period, an investment entity or any of its subsidiaries has, without
having a contractual obligation to do so, provided financial or other support to an
unconsolidated subsidiary (eg purchasing assets of, or instruments issued by, the
subsidiary or assisting the subsidiary in obtaining financial support), the entity shall
disclose:
(a) the type and amount of support provided to each unconsolidated subsidiary; and
(b) the reasons for providing the support.
19F An investment entity shall disclose the terms of any contractual arrangements that could
require the entity or its unconsolidated subsidiaries to provide financial support to an
unconsolidated, controlled, structured entity, including events or circumstances that could
expose the reporting entity to a loss (eg liquidity arrangements or credit rating triggers
associated with obligations to purchase assets of the structured entity or to provide
financial support).
19G If during the reporting period an investment entity or any of its unconsolidated
subsidiaries has, without having a contractual obligation to do so, provided financial or
other support to an unconsolidated, structured entity that the investment entity did not
control, and if that provision of support resulted in the investment entity controlling the
structured entity, the investment entity shall disclose an explanation of the relevant
factors in reaching the decision to provide that support.
After paragraph 21, paragraph 21A is added.
21A An investment entity need not provide the disclosures required by paragraphs 21(b)
21(c).
After paragraph 25, paragraph 25A is added.
25A An investment entity need not provide the disclosures required by paragraph 24 for an
unconsolidated structured entity that it controls and for which it presents the disclosures
required by paragraphs 19A19G.
In Appendix A, a term is added. New text is underlined.
The following terms are defined in Ind AS 27 (as amended), Ind AS 28 (as amended), Ind AS 110
and Ind AS 111 Joint Arrangements and are used in this Ind AS with the meanings specified in those
Ind ASs:
· associate
· consolidated financial statements
· control of an entity
· equity method
· group
· investment entity
· joint arrangement
· ...
Amendments to Ind AS 27 Separate Financial Statements
Paragraphs 56 are amended. New text is underlined.
5 The following terms are defined in Appendix A of Ind AS 110 Consolidated Financial
Statements, Appendix A of Ind AS 111 Joint Arrangements and paragraph 3 of Ind AS 28
Investments in Associates and Joint Ventures:
· associate
· control of an investee
· group
· investment entity
· joint control
· ...
6 Separate financial statements are those presented in addition to consolidated financial
statements or in addition to financial statements in which investments in associates or
joint ventures are accounted for using the equity method, other than in the circumstances
set out in paragraphs 88A. Separate financial statements need not be appended to, or
accompany, those statements.
After paragraph 8, paragraph 8A is added.
8A An investment entity that is required, throughout the current period and all comparative
periods presented, to apply the exception to consolidation for all of its subsidiaries in
accordance with paragraph 31 of Ind AS 110 presents separate financial statements as its
only financial statements.
After paragraph 11, paragraphs 11A11B are added.
11A If a parent is required, in accordance with paragraph 31 of Ind AS 110, to measure its
investment in a subsidiary at fair value through profit or loss in accordance with Ind AS
39, it shall also account for its investment in a subsidiary in the same way in its separate
financial statements.
11B When a parent ceases to be an investment entity, or becomes an investment entity, it shall
account for the change from the date when the change in status occurred, as follows:
(a) when an entity ceases to be an investment entity, the entity shall, in accordance with
paragraph 10, either:
(i) account for an investment in a subsidiary at cost. The fair value of the
subsidiary at the date of the change of status shall be used as the deemed cost
at that date; or
(ii) continue to account for an investment in a subsidiary in accordance with Ind
AS 39.
(b) when an entity becomes an investment entity, it shall account for an investment in a
subsidiary at fair value through profit or loss in accordance with Ind AS 39. The
difference between the previous carrying amount of the subsidiary and its fair value
at the date of the change of status of the investor shall be recognised as a gain or loss
in profit or loss. The cumulative amount of any fair value adjustment previously
recognised in other comprehensive income in respect of those subsidiaries shall be
treated as if the investment entity had disposed of those subsidiaries at the date of
change in status.
After paragraph 16, paragraph 16A is added.
16A When an investment entity that is a parent (other than a parent covered by paragraph
16) prepares, in accordance with paragraph 8A, separate financial statements as its
only financial statements, it shall disclose that fact. The investment entity shall also
present the disclosures relating to investment entities required by Ind AS 112
Disclosure of Interests in Other Entities.
Paragraph 17 is amended. New text is underlined.
17 When a parent (other than a parent covered by paragraphs 1616A) or an investor
with joint control of, or significant influence over, an investee prepares separate
financial statements, the parent or investor shall identify the financial statements
prepared in accordance with Ind AS 110, Ind AS 111 or Ind AS 28 (as amended in
2011) to which they relate. The parent or investor shall also disclose in its separate
financial statements:
(a) ...
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