IAS 28 – Investments in Associates and Joint Ventures
1. Under the equity method, on initial recognition the investment in an associate or a joint venture
is recognized __________, and the carrying amount is increased or decreased to recognize the
investor’s share of the profit or loss of the investee after the date of acquisition.
o
At cost
o
At fair value
o
At historical cost
At amortized cost
2. Which of the following measures provides the most informative reporting of the investor’s net
assets and profit or loss?
o
o
A) The recognition of income on the basis of distributions received
o
B) Application of the equity method
o
C) Proportional allocation of returns
o
D) A and C
3. IFRS 9 Financial Instruments shall be applied to interests in associates and joint ventures that are
accounted for using the equity method.
o
True
o
False
4. Unless an investment, or a portion of an investment, in an associate or a joint venture is classified
as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations, the investment, or any retained interest in the investment __________.
o
Not classified as held for sale, shall be impaired
o
Not classified as held for sale, shall be classified as a non-current asset
o
Shall also be classified as held for sale
Shall be recognized at fair value through profit or loss
5. Under which of the following circumstances shall the entity apply the equity method?
o
o
A) The entity’s debt or equity instruments are not traded in a public market
o
B) The entity did not file, nor is it in the process of filing, its financial statements with a
securities commission or other regulatory organization, for the purpose of issuing any class
of instruments in a public market
o
C) The ultimate or any intermediate parent of the entity produces financial statements
available for public use that comply with IFRSs, in which subsidiaries are consolidated or
are measured at fair value through profit or loss in accordance with IFRS 10
o
D) A or B
o
E) None of the above
6. When an entity has an investment in an associate, a portion of which is held indirectly through
a venture capital organization, the entity may elect to measure that portion of the investment in
the associate at fair value through profit or loss in accordance with IFRS 9 __________ the
venture capital organization has __________ over that portion of the investment.
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IAS 28 – Investments in Associates and Joint Ventures
o
Only if; significant influence
o
Only if; control
o
Regardless of whether; significant influence
o
Unless; control
7. Which of the following statements is true with regards to an entity that discontinues the use of
the equity method from the date when its investment ceases to be an associate or a joint venture?
o
A) If the investment becomes a subsidiary, the entity shall account for its
investment in accordance with IFRS 3 Business Combinations and IFRS 10
Consolidated Financial Statements
o
B) If the retained interest in the former associate or joint venture is a financial
asset, the entity shall measure the retained interest at historical cost
o
C) The entity shall account for all amounts previously recognized in other
comprehensive income in relation to that investment on the same basis as would have
been required if the investee had directly disposed of the related assets or liabilities
o
D) A and C
E) All of the above
8. If an investment in an associate becomes an investment in a joint venture or an investment in a
joint venture becomes an investment in an associate, the entity continues to apply the equity
method and does not remeasure the retained interest.
o
o
True
o
False
9. Gains and losses resulting from ‘upstream’ and ‘downstream’ transactions involving assets that
do not constitute a business, as defined in IFRS 3 Business Combinations, between an entity and
its associate or joint venture __________.
o
Shall be recognized in the entity’s financial statements only to the extent of
unrelated investors’ interests in the associate or joint venture
o
Shall be recognized in the entity’s financial statements in full
o
Shall be eliminated against the investment accounted for using the equity method
Shall not be presented as deferred gains or losses in the entity’s consolidated statement
of financial position in which investments are accounted for using the equity method
10. Under which of the following circumstances shall the investor recognize its share in losses
incurred?
o
o
A) When upstream transactions provide evidence of a reduction in the net
realizable value of the assets to be purchased
o
B) When upstream transactions provide evidence of an impairment loss of the
assets to be purchased
o
C) When downstream transactions provide evidence of a reduction in the net
realizable value of the assets to be sold or contributed
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IAS 28 – Investments in Associates and Joint Ventures
o
o
D) When downstream transactions provide evidence of an impairment loss of
the assets to be sold or contributed
E) A or B
o
F) B or C
11. What concept does IFRS 10 identify as the determining factor as to whether an entity should
be included within the consolidated financial statements of the parent company?
⇛ Significant influence
⇛ Voting rights
➥ Control
⇛ Power
12. Power is the current ability to direct the activities that significantly influence returns which
can be positive, negative or both. The determination of power is based on current facts and
circumstances, is continuously assessed. Which of the following circumstances would not be
taken into account when determining whether the investor has power?
⇛ The size of its holding and the dispersion of holdings
➥ Other contractual agreements with suppliers
⇛ If the investee is controlled by rights other than voting power
⇛ Whether other shareholders are passive by nature
13. IFRS 12, ‘Disclosure of interests in other entities’ sets out the required disclosures for entities
reporting under the two new standards, IFRS 10 and IFRS 11. The disclosure requirements
of which accounting standard, does this standard replace? A. IFRS 3 Business Combinations
⇛ IAS 27 Consolidated and separate financial statements
➥ IFRS 3 Business Combinations
⇛ IAS 28 Investments in Associates
⇛ IFRS9 Financial Instruments
14. On what basis will a joint operator recognize its interest in the investment?
⇛ Its share of the net assets
⇛ Its share of the profit or loss
➥ Its direct rights and obligations
⇛ Its participation interests
15. The International Accounting Standards Board (IASB) has recently issued IFRS 10,
Consolidated Financial Statements, IFRS 11, Joint Arrangements and IFRS 12, Disclosure of
Interests in Other Entities. The issuance of these standards completes IASB’s improvements to
the accounting requirements for off- balance sheet activities and joint arrangements. Which
of the following standards/parts of standards has the new IFRSs not replaced?
⇛ The accounting requirements of IFRS 3, Business Combinations
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IAS 28 – Investments in Associates and Joint Ventures
➥ The consolidation guidance in IAS 27, Consolidated and Separate Financial
Statements, and SIC-12, Consolidation - Special Purpose Entities
➥ IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities-NonMonetary Contributions by Venturers
➥ The disclosure requirements in IAS 28, Investments in Associates
16. Which of the following information is not required to be disclosed under IFRS 12?
⇛ Interests in subsidiaries
⇛ Interests in joint arrangements and associates
➥ Contracts for employees to buy shares in the parent company as part of their
remuneration
⇛ Significant judgments and assumptions in determining that it controls another entity
17. Which of the following factors is not a basis for determining whether the investor has control?
⇛ Exposure, or rights, to variable returns from its involvement with the investee
➥ The ability to exercise significant influence
⇛ Whether an investor has power over the investee
⇛ The ability to use its power over the investee to affect the amount of the returns
18. How does a joint-ventures recognize its interest in a joint venture?
➥ As an investment and accounts for that investment using the acquisition method
➥ An investment and accounts for that investment using the partial goodwill method
➥ As an associate and accounts for that investment using proportionate consolidation
⇛ As an investment and accounts for that investment using the equity method
19. Entities will have to assess whether they are ‘principals’ or ‘agents’ in their relationships with
the investee. What will be the outcome where the investor is deemed to be an agent?
➥ Proportionate consolidation will be used
➥ The investor will have to consolidate their investments
⇛ The investor will not consolidate their investments
➥ The true and fair view override will be used to consolidate the investment
20. How does a party that participates in, but does not have joint control of a joint venture, nor
has significant influence account for its interest in the arrangement?
⇛ In accordance with IFRS 3 Business Combinations
⇛ in accordance with IAS 28 Investments in Associates
⇛ In accordance with IFRS 10, Consolidated Financial Statements
➥ In accordance with IFRS9 Financial Instruments
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