IAS 27 · Free study guide
IAS 27 Separate Financial Statements Summary
Last updated 13 September 2026 · Written by the AccountingTutorAI team · Reviewed by a qualified CPA (Canada)
Quick summary
IAS 27 governs separate financial statements — the financial statements an investor prepares showing investments in subsidiaries, joint ventures and associates at cost, at fair value, or using the equity method, rather than consolidating or equity-accounting them the way IFRS 10, IFRS 11 and IAS 28 require for consolidated financial statements. Separate financial statements are presented in addition to consolidated financial statements, not instead of them, and the accounting policy choice an entity makes for each category of investment has a direct effect on how dividends and fair value movements land in profit or loss. For ACCA SBR, IAS 27 questions usually turn on two things: knowing which of the three measurement bases is being used, and correctly recognising a dividend received from a subsidiary, joint venture or associate as income in the parent's own separate financial statements — a very different answer from how that same dividend is treated on consolidation.
What separate financial statements are
Separate financial statements are those prepared by a parent (or an investor with joint control of, or significant influence over, an investee), in which investments in subsidiaries, joint ventures and associates are accounted for at cost, at fair value under IFRS 9, or using the equity method — rather than through consolidation or equity accounting in the way the group's consolidated financial statements would require. An entity that has no subsidiaries, joint ventures or associates at all does not prepare 'separate' financial statements in this technical sense; it simply has its only set of financial statements.
The measurement choice
In separate financial statements, an entity accounts for its investments in subsidiaries, joint ventures and associates using one of three bases, applied consistently for each category of investment: at cost; in accordance with IFRS 9 (fair value); or using the equity method as described in IAS 28 (IAS 27.10). An entity is not locked into a single basis for every investment — it could, for example, hold subsidiaries at cost while equity-accounting its associates, as long as the choice is applied consistently within each category.
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Try the AI TutorHow dividends are recognised
Dividends from a subsidiary, joint venture or associate are recognised in profit or loss when the investor's right to receive payment is established (IAS 27.12) — this applies whether the investment is held at cost or at fair value under IFRS 9. Where the investment is measured at cost, receiving a dividend larger than the investee's total comprehensive income since acquisition can be an indicator that the investment may be impaired, and triggers an impairment assessment rather than automatically reducing the carrying amount. Where the equity method is applied instead, dividends reduce the carrying amount rather than being recognised as income, in the same way as under IAS 28.
Who prepares separate financial statements, and when
Separate financial statements are prepared when an entity chooses, or is required by local regulation, to present them in addition to — never instead of — consolidated financial statements where it has subsidiaries, or financial statements in which investments in associates and joint ventures are equity-accounted. There is no IFRS requirement that every parent prepare separate financial statements at all.
Worked example: the same investment under all three measurement bases
Investor holds 100% of Subsidiary Co, acquired for $1,000,000 on 1 January Year 1. During the year Subsidiary Co reports profit of $120,000 and pays a dividend of $80,000, and the fair value of the investment rises to $1,150,000 by 31 December Year 1.
| Basis | Dividend treatment | Closing carrying amount |
|---|---|---|
| Cost (IAS 27.10(a)) | $80,000 recognised as dividend income in P&L; carrying amount unchanged (no impairment indicators here) | 1,000,000 |
| Fair value through profit or loss (IFRS 9) | $80,000 recognised as dividend income; investment remeasured to fair value, with the $150,000 movement also recognised in P&L | 1,150,000 |
| Equity method (IAS 28) | $80,000 dividend reduces the carrying amount, not income; carrying amount instead moves by Investor's 100% share of Subsidiary Co's $120,000 profit | 1,040,000 |
| Basis producing the highest profit-or-loss impact for the year | Fair value through profit or loss: $230,000 ($80,000 dividend + $150,000 fair value gain) | |
Cost basis P&L impact: $80,000 (dividend only). Equity method P&L impact: $120,000 (share of profit only — the dividend is not separately recognised as income). Journals below are shown for the equity-method basis only, since it is the one most often tested alongside IAS 28's equivalent mechanics.
| Account | Dr (CU) | Cr (CU) |
|---|---|---|
| Investment in subsidiary | 1,000,000 | |
| Cash | 1,000,000 |
| Account | Dr (CU) | Cr (CU) |
|---|---|---|
| Investment in subsidiary | 120,000 | |
| Share of profit of subsidiary (P&L) | 120,000 |
| Account | Dr (CU) | Cr (CU) |
|---|---|---|
| Cash | 80,000 | |
| Investment in subsidiary | 80,000 |
Closing carrying amount under the equity method: 1,000,000 + 120,000 − 80,000 = 1,040,000. The single biggest exam trap in IAS 27 is applying the wrong dividend rule for the basis actually in use — recognising dividend income on top of an equity-accounted share of profit, or reducing the carrying amount for a dividend when the investment is really held at cost. Always check which of the three bases is being used before deciding what the dividend does.
Test yourself: 5 IAS 27 practice questions
1. In its separate financial statements, which measurement bases may an entity use for its investments in subsidiaries?
- A. Cost only
- B. Fair value under IFRS 9 only
- C. Cost, fair value under IFRS 9, or the equity method under IAS 28, applied consistently by category of investment
- D. Whichever basis produces the highest reported profit each year
Show answer
Correct answer: C
IAS 27.10 permits all three bases, applied consistently within each category of investment. A and B each name only one of the three permitted options. D describes opportunistic basis-switching, which IAS 27 does not allow — the policy must be applied consistently, not chosen year by year for profit effect.
2. An investment in a subsidiary is held at cost. The dividend received this year exceeds the subsidiary's total comprehensive income since acquisition. What does this trigger?
- A. An automatic write-down of the investment's carrying amount by the excess
- B. An indicator that the investment may be impaired, requiring an impairment assessment
- C. Reclassification of the investment to the equity method
- D. Nothing — the full dividend is simply recognised as income with no further action
Show answer
Correct answer: B
A dividend exceeding the investee's total comprehensive income since acquisition is treated as an impairment indicator, triggering an assessment rather than an automatic reduction. A overstates the consequence — it's an indicator, not a mechanical write-down. C is not a consequence of this fact pattern. D ignores the impairment-indicator requirement.
3. Under the equity method as applied in separate financial statements, a dividend received from a subsidiary:
- A. Is recognised as dividend income in profit or loss
- B. Reduces the carrying amount of the investment
- C. Is recognised in other comprehensive income
- D. Has no accounting effect until the investment is disposed of
Show answer
Correct answer: B
Equity-method mechanics are the same in separate financial statements as under IAS 28 — the dividend reduces the carrying amount rather than being recognised as income, since the related profit was already recognised through the share-of-profit entry. A double-counts. C misapplies OCI. D ignores that the reduction happens when the dividend is received, not on eventual disposal.
4. Can an entity use the equity method to account for a subsidiary in its separate financial statements?
- A. No — the equity method is only available for associates and joint ventures
- B. Yes, since a 2014 amendment to IAS 27 added the equity method as a permitted option for separate financial statements
- C. Only if the subsidiary is individually immaterial
- D. Only with prior approval from the entity's auditor
Show answer
Correct answer: B
IAS 27 was amended in 2014 to add the equity method as a third permitted basis (alongside cost and IFRS 9 fair value) for investments in subsidiaries, joint ventures and associates in separate financial statements. A predates that amendment and is no longer correct. C and D describe conditions IAS 27 does not impose.
5. Separate financial statements are presented:
- A. Instead of consolidated financial statements, whenever a parent chooses
- B. In addition to consolidated financial statements or equity-accounted financial statements, never instead of them
- C. Only by entities that are not required to consolidate at all
- D. Only when local law prohibits consolidation
Show answer
Correct answer: B
Separate financial statements supplement, rather than replace, consolidated or equity-accounted financial statements. A misstates the relationship. C and D both wrongly suggest separate financial statements are a substitute used in the absence of consolidation, rather than an addition to it.
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Start freeFrequently asked questions
What's the difference between separate and consolidated financial statements?
Consolidated financial statements combine a parent and its subsidiaries as a single economic entity. Separate financial statements are the parent's own statements, in which investments in subsidiaries, joint ventures and associates are shown at cost, at fair value, or using the equity method — never combined line by line.
Which measurement options does IAS 27 allow?
Cost, fair value in accordance with IFRS 9, or the equity method described in IAS 28 — chosen consistently for each category of investment (subsidiaries, joint ventures, associates).
How are dividends from a subsidiary recognised?
In profit or loss, when the right to receive payment is established — unless the investment is equity accounted, in which case the dividend instead reduces the investment's carrying amount.
Can the equity method be used in separate financial statements?
Yes. A 2014 amendment to IAS 27 added the equity method as a permitted basis for investments in subsidiaries, joint ventures and associates in separate financial statements, alongside cost and IFRS 9 fair value.
Who must prepare separate financial statements?
IFRS does not require every parent to prepare them. Where an entity does present separate financial statements — by choice or local regulation — they are presented in addition to, not instead of, consolidated or equity-accounted financial statements.
Does the measurement choice have to be the same for every investment?
No. The basis is applied consistently within each category of investment (all subsidiaries, all joint ventures, all associates) but different categories can use different bases — for example, subsidiaries at cost and associates under the equity method.