Introduction

IFRIC 17 addresses the following issues:

• when should the entity recognise the dividend payable?
• how should the entity measure the dividend payable?
• when it settles the dividend payable, how should the entity account for any difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable?

IFRS 5 applies to a non-current asset (or disposal group) that is classified as held for distribution to owners acting in their capacity as owners.

Subject to certain scope exclusions, IFRIC 17 requires distributions of non-cash assets to be accounted for at the fair value of the assets concerned. This will often result in a profit being recognised when the distribution is settled.

Scope

IFRIC 17 applies to the following types of non-reciprocal distributions of assets by an entity to its owners acting in their capacity as owners:

• distributions of non-cash assets (e.g., items of property, plant and equipment, businesses, ownership interests in another entity, or disposal groups as defined in IFRS 5); and
• distributions that give owners a choice of receiving either non-cash assets or a cash alternative.

The Interpretation applies only to distributions in which all owners of the same class of equity instruments are treated equally.

IFRIC 17 explains that distributions, when owners of the same class of equity are treated differently, may imply that at least some of the owners receiving the distribution gave up something to the entity and/or to the other owners. In other words, such distributions might be more in the nature of exchange transactions.

In practice, such transactions are likely to be rare and will usually be with a controlling shareholder.

The Interpretation does not apply to a distribution of a non-cash asset that is ultimately controlled by the same party or parties before and after the distribution. This exclusion applies to the separate, individual and consolidated financial statements of an entity that makes a distribution.

For the purpose of this scope exclusion, a group of individuals is regarded as controlling an entity when, as a result of contractual arrangements, they collectively have the power to govern its financial and operating policies so as to obtain benefits from its activities. This is consistent with the requirement in IFRS 3 for the identification of common control transactions.

Therefore, for a distribution to be outside the scope of IFRIC 17 on this basis, a group of individual shareholders receiving the distribution must have, as a result of contractual arrangements, such ultimate collective power over the entity making the distribution.

Therefore, IFRIC 17 applies in the common situation of a demerger of a subsidiary by a listed entity that has no single controlling party. However, it will not apply to intragroup transactions when a subsidiary makes a distribution to its parent. Nor will it apply to distributions by private entities when there is a single controlling shareholder.

Similarly, IFRIC 17 does not apply when an entity distributes some of its ownership interests in a subsidiary but retains control of the subsidiary. The entity making a distribution that results in the entity recognising a non-controlling interest in its subsidiary should account for the distribution in accordance with IFRS 10.

For example, if a parent distributes 25 per cent of the shares in its wholly-owned subsidiary to its shareholders but retains control of that subsidiary, the transaction will be outside the scope of IFRIC 17.

In accordance with IFRS 10, no profit or loss should be recognised on the transaction. In such circumstances, although there is a reallocation between parent and non-controlling interests, the assets and liabilities of the group do not change.

IFRIC 17 addresses only the accounting by the entity that makes the non-cash distribution. It does not address the accounting by shareholders who receive such a distribution. [IFRIC 17:8]

IFRIC 17 includes some simple examples regarding the application of these scope exclusions which are not reproduced here because they provide no significant interpretational guidance. The first example considers a distribution of available-for-sale securities and contrasts the position when there is not a controlling shareholder (i.e., the distribution is within the scope of IFRIC 17) and when there is a controlling shareholder (i.e., the distribution is not within the scope of IFRIC 17).

The second example contrasts the distribution of the whole of a subsidiary by a parent that has no controlling party (i.e., the distribution is within the scope of IFRIC 17) with the distribution of shares in a subsidiary without loss of control by the parent (i.e., the distribution causes a non-controlling interest in the subsidiary to be recognized, and is not within the scope of IFRIC 17).

IFRIC 17 does not include an exemption on the grounds of cost or effort or practicality. The reasons for this are explained in IFRIC 17. IFRIC 17 states that management would be expected to know the fair value of the asset because management has to ensure that all owners of the entity are informed of the value of the distribution.

The IFRIC (now the IFRS Interpretations Committee) therefore concluded that it would be difficult to argue that the fair value of the asset cannot be determined reliably. It is arguable that when all shareholders are treated in the same way they do not need to know the fair value of the distribution because the value of their total investment will be unaffected. Nevertheless, no scope exclusion is provided for these circumstances.