BCZ38 The 2000 version of IAS 28 and SIC‑20 Equity Accounting Method - Recognition of Losses restricted application of the equity method when, in accounting for the entity’s share of losses, the carrying amount of the investment is reduced to zero.

BCZ39 The Board decided that the base to be reduced to zero should be broader than residual equity interests and should also include other non-equity interests that are in substance part of the net investment in the associate or joint venture, such as long-term receivables. Therefore, the Board decided to withdraw SIC‑20.

BCZ40 The Board also noted that if non-equity investments are not included in the base to be reduced to zero, an entity could restructure its investment to fund the majority in non-equity investments to avoid recognising the losses of the associate or joint venture under the equity method.

BCZ41 In widening the base against which losses are to be recognised, the Board also clarified the application of the impairment provisions of IAS 39 Financial Instruments: Recognition and Measurement [IFRS 9 Financial Instruments replaced IAS 39. IFRS 9 applies to all items that previously were within the scope of IAS 39.] to the financial assets that form part of the net investment.