IAS 28
INVESTMENT IN ASSOCIATES AND
JOINT VENTURES
REFERENCES:
a)
b)
c)
d)
IAS 28 Investments in Associates and Joint Ventures
IFRS 11 Joint Arrangements
Chapter 14 & 17: Prinsloo & Forsyth
Excluded:
• IAS 28: Venture capital/mutual fund exemption
• IAS 28: Classification as held for sale
• IAS 28: Changes in interests in associate (but still an associate)
• IAS 28: Investment entities
• IAS 28: Separate financial statements fair value option
• IFRS 11: Joint operation accounting (can get a discussion question on JV vs JO)
• IFRS 11: Separate financial statement fair value option
e) Not covered in ACCT3B:
• Sale of shares in Associate/JV
• Purchase of additional shares in Associate/JV
Covered later in ACCT3B: Holding increased from Financial Asset to Significant Influence
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IAS 28 applies to Investors that have:
Significant
Influence
Joint
Control
Associate
Joint
Venture
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ASSOCIATE – SIGNIFICANT INFLUENCE
An associate is an entity over which an investor has significant influence.
Significant influence - the power to participate in the financial and operating policy decisions of the investee
but is NOT a control or joint control of those policies.
Main indicator of significant influence: holding (directly or indirectly) > 20% of the voting power of the
investee (between 20% and 50%) Para 5, IAS 28
Other indicators of significant influence:
• Representation on the board of directors of the investee.
• Participates in policy-making processes (dividend decisions).
• Material transactions between the investor and its investee.
• Interchange of managerial personnel.
• Provision of essential technical information.
Potential voting rights - take into account options, warrants, convertible instruments currently exercisable
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EQUITY METHOD
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EQUITY METHOD
AT ACQUISITION FAIR VALUE ADJUSTMENTS OF DEPRECIABLE ASSETS
• Pro forma depreciation adjustment in post acquisition years (similar to consolidation of sub)
• Adjustment to share of profit from associate
GOODWILL
• Ito IFRS 3 - after determining fair value of net assets at acquisition
• included in ‘Investment in associate/JV’ account i.e. not shown separately
CUMULATIVE PREFERENCE SHARES
• Profit attributable is computed after adjusting for the current preference dividends
INTRA GROUP TRANSACTIONS
Unearned profit, depreciation and deferred tax adjustments must be included in the worksheet whether H
sells to A or vice versa  only the investors share will be included in the since RE.
Adjust the share of profit of associate and investment in associate for both upstream and downstream
adjustments
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IFRS 11 JOINT ARRANGEMENTS
Joint
Venture
Joint
Operation
Joint
Venturer
Joint
Operator
Accountingfor a JO
Excluded for SAICA
ITC
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IFRS 11 – JOINT ARRANGEMENTS
Joint Arrangement - 2 or more parties have joint control
Joint Control
• is the contractual sharing of control,
• which exists only when decisions about relevant activities
• require the unanimous consent of parties sharing control
Joint Venture
• the parties having joint control have rights to the net assets of the arrangement
• Equity method of accounting (IAS 28, as per investment in associate)
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Prinsloo & Forsyth Textbook Examples (please follow in your text book)
14.1 Page 171
At acquisition: 30% of R100 000 = R30 000
Paid
= R40 000
Therefore Goodwill
= R10 000 not shown separately
Investment in B Ltd (SOFP)
= R40 000 @ Acq: DR Inv in B Ltd; Cr Bank
Post acquisition profit = R 20 000
Associates share = 30% x R20 000 = R6 000 increase in investment in B Ltd
DR Investment in B Ltd (SOFP)
= R6 000
CR Share of Profit of Associate (SOPLOCI)
= R6 000
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Prinsloo & Forsyth Textbook Examples (please follow in your text book)
14.2 Page 174
At acquisition: 30% of R100 000 = R30 000
Paid
= R40 000
Therefore Goodwill
= R10 000 not shown separately
Investment in B Ltd (SOFP)
= R40 000 @ Acq: DR Inv in B Ltd; Cr Bank
Post acquisition profit = R 20 000
Associates share = 30% x R20 000 = R6 000 increase in investment in B Ltd
DR Investment in B Ltd (SOFP)
= R6 000
CR Share of Profit of Associate (SOPLOCI)
= R6 000
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