About IFRIC D23
Sometimes an entity distributes assets other than cash as dividends to its owners acting in their capacity as owners (holders of equity instruments).
At present, International Financial Reporting Standards (IFRSs) do not address how distributions to owners should be measured. Consequently, significant diversity in practice in how entities measure such distributions has developed.
IFRIC D23 addresses the following issues:
a) How an entity should measure an
obligation to distribute non-cash assets to its
owners (the dividend payable)
b) When an entity settles the dividend payable,
how it should account for any difference
between the carrying amount of the assets
distributed and the carrying amount of the
dividend payable. The IFRIC noted that any difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable would always be a credit balance because of impairment requirements in applicable IFRSs.
Proposed requirements in IFRIC D23
On issue (a), IFRIC D23 proposes that all dividends payable, regardless of the types of assets to be distributed, should be measured in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
In the IFRIC’s view, all distributions have the same purpose, that is, to distribute assets to owners. To apply the requirements in IAS 37 to measure a dividend payable, an entity should consider the fair value of the assets to be distributed.
On issue (b), IFRIC D23 proposes that the credit balance recognised at the time the dividend payable is settled should be included in profit or loss as a separate line item. Recognising the credit balance in profit or loss reflects the fact that the cumulative unrecognised gain associated with the assets is realised when they are derecognised.
The IFRIC noted that some might take the view that the credit balance should be recognised as an owner change in equity. The IFRIC invites comments on both views.
Potential impact of IFRIC D23
IFRIC D23 proposes to standardise practice by ensuring that entities measure all dividends payable the same way, regardless of the types of the assets to be distributed (ie considering the fair value of the assets to be distributed).
When an entity recognises a dividend payable, profit or loss is not affected. The dividend is recognised in equity in accordance with IAS 1 Presentation of Financial Statements.
After an entity recognises a dividend payable but before it settles the liability, IFRIC D23 proposes that any changes in the carrying amount of the dividend payable be recognised as adjustments to the amount of the distribution (ie in equity).
When an entity distributes the assets (ie derecognises both the assets distributed and the dividend payable), IFRIC D23 proposes that any difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable be recognised in profit or loss. Recognising the difference in profit or loss reflects the fact that the cumulative unrecognised gain associated with the assets is realised when they are derecognised.
Prospective application
The IFRIC acknowledges the difficulty that entities would face in recognising past distributions at their fair values. It, therefore, proposes that the guidance be applied only to future distributions.