Entity B is a first-time adopter of IFRS. Entity B has previously accounted for an investment that is classified as a joint operation under IFRS 11 using the equity method of accounting under other GAAP. What is one of the steps that Entity B is required to take when changing from the equity method to accounting for assets and liabilities in respect of its interest in a joint operation?
A. Determine its interest in the assets and liabilities relating to the joint operation on the basis of its rights and obligations in a specified proportion in accordance with the contractual arrangement.
B. Determine its interest in the assets and liabilities related to the joint operation on the basis of the relative fair value of its equity interest compared to the other entities' equity interests.
C. Retain the investment that was accounted for using the equity method and adjust the carrying amount through profit or loss.
D. Derecognize the equity method investment and recognize any difference from the amount recognized for the joint operation as an offset against any goodwill only.
When Entity B, a first-time adopter of IFRS, changes from the equity method to accounting for assets and liabilities in respect of its interest in a joint operation, it is required to determine its interest in the assets and liabilities based on its rights and obligations in a specified proportion according to the contractual arrangement. Therefore, the correct step is:
A. Determine its interest in the assets and liabilities relating to the joint operation on the basis of its rights and obligations in a specified proportion in accordance with the contractual arrangement.
This approach aligns with the requirements of IFRS 11, which deals with joint arrangements and necessitates that parties account for their interests in joint operations based on their rights and obligations within the contractual terms.
