SOCPA Shares its Views on the Preliminary Decision of the Interpretations Committee on the Sale of an Affiliate Facility and Re-lease of the Only Asset it Owned
SOCPA shared its opinion on the preliminary decision of IFRS Interpretations Committee on how to account for the sale of the entire ownership share in a 100% owned subsidiary and one asset and then re-lease that asset from this facility after the sale.
It is the opinion of SOCPA that the analysis of the case considers the sale of the 'business' as direct sale of the individual assets held by that business, which might not be the proper analysis.
SOCPA believes that the first step in the analysis is to evaluate whether the said subsidiary satisfies the definition of 'business' provided for in IFRS 3 "Business Combinations". If it satisfies that definition, the disposal of the business is in the scope of IFRS 10 "Consolidated Financial Statement", the sale of the business does not constitute the sale of the individual assets owned by the subsidiary to the new holders of its equity and hence IFRS 15 "Revenue from Contracts with Customers " does not apply, which is the basis of sale and leaseback requirements stated in IFRS 16 "Leases".
IFRS 10 does not exclude in its scope disposal of the business, nor IFRS 16 indicate that the transaction is included in its scope, as well as IFRS 15 explicitly excluded transactions falling within the scope of IFRS 10.
SOCPA responded to a number of factors mentioned in the initial decision; whether included in or excluded from the standard according to the nature of disposed business.
SCOPA believes that the proposed treatment of this transaction is amending the standard; exclude it from IFSR 10 and include it in the scope of IFRS 16 in the same manner a number of transaction were excluded from a standard or included in preliminary decision.
SOCPA detailed remarks can be found by clicking here.