IASB: IASB stands for International Accounting Standards Board that is the independent body for setting accounting standards at the foundation of IFRS. It holds the responsibility for the development of International Financial Reporting Standards and promotion for the application and use of all of these standards (Austin and Ramsay 2011).
Cost Method: The method of cost had also been described by the IASB as the method related to accounting for an investment in which recording of investment is done in terms of cost. In this method, the investor is known to be recognizing the amount of income from the amount of investment only to the limit that the investor will be receiving distributions from the amount of retained earnings related to the investee that arises after the date related to acquisition (Deegan 2010).
Pre- acquisition profits: Pre- acquisition profits is referred to as the retained profit of an organization earned prior to taking over, and therefore, not having the eligibility for being distributed as a dividend to the base of shareholder for the acquiring organization(Austin and Ramsay 2011).
Reconsidering the procedures of consolidation on the basis of the new model of IASB for dividends that are pre- acquired are known to be having four issues (American Accounting Association 1944). Firstly, the requirement of consolidation for eliminating the investment account of parent against equity in the hands of subsidiary may not be adhering to strictly. Secondly, the losses of group may be identified as an artefact of consolidation. Thirdly, measuring the interest that cannot be controlled may not accurately be reflecting the definition. Fourthly, it ends up becoming extremely important for identifying if inter- organization dividends in the previous periods are from the profits that have been pre- acquired related to the purpose for measurement of non- controlling interest (Austin and Ramsay 2011).
If analysing further ahead, it has been indicated that the identification of four technical issues are known to be attributable to the new model of IASB for dividends pre- acquired having inconsistency with the long standing applicable principles for accounting of consolidation. In accordance to this, there must be encouragement in IASB for explicitly considering the consequences of consolidation that have approached by replacing the method of cost with the perspective to inform the users related to Standards of International Financial Reporting. This is to deal with the important technical problems. The IASB will be in need for undertaking the additional work to set standard for solving these problems (Bowra and Clarke 1973).