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MASB proposes amendment in measuring investments in subsidiaries (22 January 2009)

The Malaysian Accounting Standards Board (MASB) has released a proposed amendment to FRS 1 First-time Adoption of Financial Reporting Standards and FRS 127 Consolidated and Separate Financial Statements for public comments. The proposed amendments contained in MASB ED 60 are virtually identical to the International Accounting Standards Board amendments that were issued in May 2008.

 The amendment to FRS 1 proposes to allow first-time adopters of the Financial Reporting Standards (FRS) framework to use either the fair value or the carrying amount under previous accounting practice to measure the initial cost of investments in subsidiaries, jointly controlled entities and associates in the separate financial statements. Under the existing FRS 127, these costs of investments have to be measured either at cost or in accordance with FRS 139 Financial Instruments: Recognition and Measurement. These aspects of FRS 127 had led to practical difficulties on transition to the FRS framework.
 
In line with the proposed amendment to FRS 1, MASB ED 60 also proposes to remove the definition of 'cost method' in FRS 127. The investor ie the parent would present dividends as income without having to separate the retained earnings of the subsidiary into pre-acquisition and post acquisition components but at the same time test the related investment for impairment to reduce the risk overstatement.
 
In a statement issued today, MASB executive director Dr. Nordin Mohd Zain said, "The proposed amendment to FRS 1 would provide welcomed relieve to private entities in Malaysia in determining the cost of investments in subsidiaries, jointly controlled entities and associates when they migrate from the Private Entity Reporting Standards (PERS) framework to the FRS framework. It is the Board's aspiration that when private entities migrate to the FRS framework, they are able to do so without undue cost and effort."
 
MASB ED 60 also includes new requirements and guidance in measuring the cost of investment of a new parent formed as the result of a specific type of reorganisation. The proposals require the new parent to measure the cost of its investment in the previous parent at the carrying amount of its share of the equity items of the previous parent at the date of the reorganisation.
 
Interested parties, including the business communities, are encouraged to study the proposed amendments and provide feedback to MASB. The exposure period expires on 2 March 2009. The exposure draft is available on MASB website at http://www.masb.org.my. The public is encouraged to provide their comments electronically through ED Online on our website. Alternatively, copies of MASB ED 60 are available free of charge from MASB office.


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