In April 2026, the National Accounting Council (NAC) issued Interpretation I-54: Measurement of Financial Investments in Contributions and Spin-offs (the “Interpretation”), addressing practical issues in accounting for non-cash contributions and, newly, spin-offs (a relatively recent addition to legal framework of corporate transformations introduced in 2024).
This area had previously been only partially covered by Czech accounting legislation, leading to divergent practices, particularly on the side of contributing (demerging) entities. The Interpretation brings important harmonisation, while in some conclusions deliberately departing from solutions contained in the Czech Accounting Standards.
The key principle is that a spin‑off or contribution should not change the financial position of the contributor, as it economically only represents a transformation or transfer of the spin-off/contributed net assets into an investment in a subsidiary or associate.
Although the Interpretation uses the simplified term “contribution” for both types of transactions, it is appropriate to distinguish between them from a legal and accounting perspective.
A non‑cash contribution is a situation where a shareholder (typically a parent company) contributes assets or part thereof to another entity in exchange for an ownership interest. It is therefore a standard equity transaction between two separate accounting entities under the Business Corporations Act.
A spin‑off by demerger is, by contrast, a form of transformation under the Transformations Act, whereby part of a company’s equity is spun off into a new or existing entity, with the demerging company receiving an ownership interest in return. The economic effect is very similar to that of a capital contribution – there is an “exchange of assets for ownership interest”– but the legal form is different. This economic similarity leads the Interpretation to conclude that, from the perspective of the parent (demerging) company, both transactions should have the same accounting impact.
A key difference arises, however, on the side of the receiving entity (typically a subsidiary or associate). While in a non‑cash contribution the acquired assets must always be measured at fair value (replacement cost), in a spin‑off (provided no new share capital is created) the successor entity takes over the historical amounts.
The main implications of the Interpretation relate to the accounting treatment applied by the demerging company (typically the parent company). In a contribution or spin-off, that company acquires an investment in another accounting entity and must determine the amount at which that investment should be recognised.
Under the Interpretation, the investment should be measured based on the net carrying amount of the transferred business. In practical terms, this means that the carrying amount of all transferred assets, net of any recognised valuation allowances, is reduced by the transferred liabilities and provisions. Valuation allowances and provisions are therefore not released to profit or loss prior to the transaction; instead, they are reflected directly in the measurement of the investment. This differs from the approach previously applied by some entities, under which contributions often resulted in “artificial” income arising solely from the release of provisions and valuation allowances by analogy to Czech Accounting Standard No. 011, Operations involving a business, which addresses the sale of a business. The rationale is that a provision does not cease to exist as a result of the transaction and therefore cannot be recognised in profit or loss; rather, it is transferred to another entity and must consequently be reflected in the carrying amount of the investment in that entity.
Another common question for the contributing entity in these transactions has been how to treat deferred tax and any valuation difference or goodwill attributable to the contributed assets, liabilities or provisions. The answer is essentially straightforward. Deferred tax represents an asset or liability closely linked to specific assets and liabilities and, accordingly, is also transferred as part of the transaction, forming part of the value of the net assets transferred. Similarly, where the company recognises a valuation difference or goodwill attributable to the contributed or spun-off part of the business, those items must also be included in the transferred net assets.
A fundamental change also arises where the net value of the equity being transferred is negative. This situation may easily occur, for example, where a loan and a property are being transferred, but the property is recorded in the accounting records at historical cost while its fair value significantly exceeds that amount. The contributed net assets therefore have a positive fair value, even though their carrying amount is negative. Under the Accounting Act, the value of an ownership interest cannot be negative and must therefore be measured at zero. According to the Interpretation, the resulting difference is recognised directly in equity.
Let us assume that Company A spins off part of its business into its subsidiary, Company B. Assets with a carrying amount of 7,500 are transferred to the subsidiary (gross amount of 10,000 and accumulated adjustments of 2,500); the assets also include a deferred tax asset of 200, while liabilities and provisions amount to 7,800. The net value of the equity being transferred is therefore –300.
In accordance with the Interpretation, the parent company recognises the ownership interest at zero and records the difference of 300 directly in equity (other capital funds being the most appropriate category). No income arises. On the subsidiary’s side, if this is a transformation without remeasurement, both the assets taken over (gross amount and accumulated adjustments), including the deferred tax asset, and the liabilities and provisions are assumed. The result is therefore a reduction in the subsidiary’s equity by 300.
If the same transaction were carried out in the form of a non-cash contribution or a transformation with remeasurement, the subsidiary would have to measure the acquired assets at fair value and recognise the related deferred tax arising from the remeasurement. This would very likely result in an equity increase.
The above accounting treatment of a negative contribution value, whereby the amount is recorded directly in equity, is in direct contradiction with Czech Accounting Standard No. 014: Long-Term Financial Assets. Where the contribution value is negative, the standard envisages recognition of the difference in profit or loss as income. The Interpretation properly substantiates this departure by noting that a mere transfer of assets cannot give rise to income. In this context, we would also point out the requirement laid down in Section 36 of the Accounting Act, which obliges accounting entities to disclose any departure from the standards, together with the reasons for it, in the notes to the financial statements.
From the perspective of the individual financial statements, the differences between a contribution and a spin-off are significant. From a consolidation perspective, however, the situation is different.
When preparing consolidated financial statements, intercompany relationships between the parent and the subsidiary, including the ownership interest itself, are eliminated. From an economic perspective, the group therefore “still owns the same assets”; those assets have merely been transferred within the group. The transaction must therefore be neutralised in the consolidation. If the transaction gives rise to a remeasurement at the level of the subsidiary, that remeasurement must be eliminated. This is why many companies welcomed the new form of transformation by spin-off. Not only because the administrative process is often easier, but also because it reduces the subsequent adjustments required when preparing the consolidated financial statements.
Interpretation I-54 provides important clarification in an area where practice had long been inconsistent. It places emphasis on the economic substance of the transaction and brings a more consistent approach to contributions and spin-offs from the perspective of the contributing or demerging company. At the same time, it highlights the obligation of that company, before recording the transaction, to assess whether the measurement of the transferred assets is appropriate – whether by reference to an expert valuation report or to the way in which the assets will be used by the successor company.
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