Exemptions from applying the equity method
for Accounting Professionals
IAS 28 Investments in Associates and Joint Ventures
2011
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CONTENTS
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IAS 28 Investments in Associates and Joint Ventures
effective date: 1 January 2013.
The main changes from the previous version of IAS 28 are as follows:
(1) The accounting for joint ventures has been incorporated into IAS 28.
(2) The scope exception for venture capital organisations, or mutual funds, unit trusts and similar undertakings, including investment-linked insurance funds has been eliminated and has been characterised as a measurement exemption from the requirement to measure investments in associates and joint ventures in using the equity method.
(3) IAS 28 now permits an undertaking that has an investment in an associate, a portion of which is held indirectly through venture capital organisations, or mutual funds, unit trusts and similar undertakings including investment-linked insurance funds, to elect to measure that portion of the investment in the associate at fair value through profit or loss in accordance with IFRS
9 regardless of whether these undertakings have significant influence over that portion of the investment.
(4) IAS 28 requires a portion of an investment in an associate, or a joint venture, to be classified as held for sale, if the disposal of that portion of the interest would fulfil the criteria in IFRS 5.
(5) Gains and losses resulting from a contribution of a non-monetary asset to an associate, or a joint venture, in exchange for an equity interest in an associate, or a joint venture, are recognised only to the extent of unrelated investors' interests in the associate, or joint venture, except when the contribution lacks commercial substance, as that term is described in IAS 16.
(6) The disclosure requirements have been placed in IFRS 12.
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Introduction
IAS 28 prescribes the accounting for investments in associates, and sets out the requirements for the application of the equity method, when accounting for investments in associates and joint ventures. (During the transition period to
2013, our earlier book covering IAS 28 will remain available.)
IAS 28 is to be applied by all undertakings that are investors with joint control of, or significant influence over, an investee.
IAS 28 defines significant influence as the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control of those policies.
IFRS 11 Joint Arrangements establishes principles for the financial reporting of parties to joint arrangements. It defines joint control as the contractually-agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
An undertaking applies IFRS 11 to determine the type of joint arrangement in which it is involved. If it is a joint venture, the undertaking records an investment and accounts for it using the equity method, in accordance with IAS
28 (unless the undertaking is exempted from applying the equity method).
Equity method
IAS 28 defines the equity method as a method of accounting whereby:
- the investment is initially recognised at cost and
-adjusted thereafter for the post-acquisition change in the investor's share of net assets of the investee.
The profit or loss of the investor includes its share of the profit or loss of the investee, and the other comprehensive income of the investor includes its share of other comprehensive income of the investee.
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An undertaking uses the equity method to account for its investments in associates, or joint ventures, in its consolidated financial statements.
An undertaking that does not have any subsidiaries also uses the equity method to account for its investments in associates, or joint ventures, in its financial statements, even though those are not described as consolidated financial statements.
The only financial statements to which an undertaking does not apply the equity method are separate financial statements it presents in accordance with IAS 27 Separate Financial Statements.
Exemptions from applying the equity method
IAS 28 provides exemptions from applying the equity method similar to those provided in IFRS 10 for parents not to prepare consolidated financial statements.
IAS 28 also provides exemptions from applying the equity method when the investment in the associate, or joint venture is held by, or is held indirectly through, venture capital organisations, or mutual funds, unit trusts and similar undertakings including investment-linked insurance funds . Those investments in associates and joint ventures may be measured at fair value through profit or loss in accordance with IFRS 9 Financial Instruments.
Disclosure
The disclosure requirements for undertakings with joint control of, or significant influence over, an investee are specified in IFRS 12 Disclosure of Interests in Other Undertakings .
Scope
IAS 28 shall be applied by all undertakings that are investors with joint control of, or significant influence over, an investee.
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Definitions
An associate is an undertaking over which the investor has significant influence.
Consolidated financial statements are the financial statements of a group in which assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic undertaking.
The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor's share of the investee's net assets. The investor's profit or loss includes its share of the investee's profit or loss, and the investor's other comprehensive income includes its share of the investee's other comprehensive income.
A joint arrangement is an arrangement of which two or more parties have joint control.
Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
A joint venturer is a party to a joint venture that has joint control of that joint venture.
Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control of those policies.
The following terms are defined in IAS 27 or IFRS 10:
● control of an investee
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● group
● parent
● separate financial statements
● subsidiary.
Significant influence
If an undertaking holds, directly or indirectly (such as through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the undertaking has significant influence, unless it can be clearly demonstrated that this is not the case.
Conversely, if the undertaking holds, directly or indirectly, less than 20 per cent of the voting power of the investee, it is presumed that the undertaking does not have significant influence, unless such influence can be clearly demonstrated.
A substantial, or majority ownership, by another investor does not necessarily preclude an undertaking from having significant influence.
The existence of significant influence by an undertaking is usually evidenced in one, or more, of the following ways:
(1) representation on the board of directors, or equivalent governing body, of the investee;
(2) participation in policy-making processes, including participation in decisions about dividends, or other distributions;
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(3) material transactions between the undertaking and its investee;
(4) interchange of managerial personnel; or
(5) provision of essential technical information.
Potential voting rights
An undertaking may own share warrants, share call options, debt or equity instruments that are convertible into ordinary shares, or other similar instruments that have the potential, if exercised or converted, to give the undertaking additional voting power, or to reduce another party's voting power, over the financial and operating policies of another undertaking.
The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other undertakings, are considered when assessing whether an undertaking has significant influence. Potential voting rights are not currently exercisable or convertible when, for example, they cannot be exercised, or converted, until a future date (or until the occurrence of a future event).
The undertaking examines all facts and circumstances (including the terms of exercise of the potential voting rights and any other contractual arrangements whether considered individually or in combination) that affect potential rights.
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EXAMPLES: SIGNIFICANT INFLUENCE
Owning 30% of an undertaking may provide significant influence, if the other shareholdings are smaller and in diverse hands. Our investor bought the 30% for a purpose and knew whether he/she would secure significant influence with the purchase.
Alternatively, holding a 30% interest when there is another shareholder with 70% may provide no significant influence, unless the 30% holder has something specific to offer, such as technical information.
Significant influence may be determined by the reason for the investment. It may become an issue for auditors when their client wishes to disclaim loss-making associates. This was an issue for Enron (US) which parked losses and liabilities in companies that did not appear in its financial statements.
Significant influence is also a key issue for IAS 24 Related Party Transactions.
Loss of significant influence
An undertaking loses significant influence over an investee when it loses the power to participate in the financial and operating policy decisions of that investee. The loss of significant influence can occur with, or without, a change in absolute, or relative, ownership levels.
EXAMPLES: LOSS OF SIGNIFICANT INFLUENCE
When an associate becomes subject to the control of a government, court, administrator or regulator. It could also occur as a result of a contractual arrangement.
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Equity method
On initial recognition, the investment in an associate, or a joint venture, is recorded at cost .
After the date of acquisition, the carrying amount is increased, or decreased, to record the investor's share of the profit or loss of the investee.
The investor's share of the investee's profit or loss is recorded in the investor's profit or loss.
Distributions (dividends) received from an investee reduce the carrying amount of the investment.
Adjustments to the carrying amount may also be necessary for changes in the investor's proportionate interest in the investee arising from changes in the investee's other comprehensive income (OCI).
Such OCI changes include those arising from the revaluation of property, plant and equipment and from foreign exchange translation differences. The investor's share of those changes is recognised in the investor's other comprehensive income (see IAS 1).
Instruments containing potential voting rights in an associate, or a joint venture, are accounted for in accordance with IFRS 9.
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, The investment , or any retained interest in the investment not classified as held for sale, shall be classified as a non-current asset.
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EXAMPLE: EQUITY METHOD
Vera bu ys 25% of Lubov’s company for 250 on January 1. Vera is made a director and provides essential technical support.
The investment is recorded at cost (250). Lubov’s profits for the year are 100. Vera records her share of the profit as
25. She debits investment in associate 25 and credits income from associates 25 (even though there is no dividend).
Lubov revalues a building during the year, declaring a surplus of 200. Vera records her share as 50.
She debits investment in associate 50 and credits OCI 50.
I/B refers to I ncome Statement, B alance Sheet (Statement of Financial Position)
EXAMPLE – Purchase of associate
Investment in Associate
Cash
I/B
B
B
DR
250
CR
250
EXAMPLE – Income from associate
Investment in Associate
Income from Associate
I/B
B
I
DR
25
CR
25
EXAMPLE – Revaluation of associate’s building
Investment in Associate
Revaluation gain -equity
I/B
B
B
DR
50
CR
50
The revaluation gain will be reported in OCI in the financial statements.
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When potential voting rights or other derivatives containing potential voting rights exist, an undertaking's interest in an associate, or a joint venture, is determined solely on the basis of existing ownership interests and does not reflect the possible exercise, or conversion, of potential voting rights and other derivative instruments.
Application of the equity method
An undertaking with joint control of, or significant influence over, an investee shall account for its investment in an associate, or a joint venture, using the equity method, except when that investment qualifies for exemption.
Exemptions from applying the equity method
An undertaking need not apply the equity method to its investment in an associate, or a joint venture, if the undertaking is a parent that is exempt from preparing consolidated financial statements by IFRS 10, or if all the following apply:
(1) The undertaking is a wholly-owned subsidiary, or is a partially-owned subsidiary of another undertaking and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the undertaking not applying the equity method.
(2) The undertaking's debt, or equity, instruments are not traded in a public market (a domestic, or foreign, stock exchange or an over-the-counter market, including local and regional markets).
(3) The undertaking did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation, for the purpose of issuing any class of instruments in a public market.
(4) The ultimate or any intermediate parent of the undertaking produces consolidated financial statements available for public use, that comply with IFRSs.
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Venture capital organisations, or a mutual funds, unit trusts and similar
When an investment in an associate, or a joint venture, is held by, or is held indirectly through, an undertaking that is a venture capital organisation, or a mutual fund, unit trust and similar undertakings including investmentlinked insurance funds, the undertaking may elect to measure investments in those associates, and joint ventures, at fair value through profit or loss in accordance with IFRS 9.
Split holding with portion through venture capital organisations, or a mutual funds, unit trusts and similar
When an undertaking has an investment in an associate, a portion of which is held indirectly through a venture capital organisation, or a mutual fund, unit trust and similar undertakings including investment-linked insurance funds, the undertaking may elect to measure that portion of the investment in the associate at fair value through profit or loss in accordance with IFRS 9 regardless of whether the venture capital organisation, or the mutual fund, unit trust and similar undertakings including investment-linked insurance funds, has significant influence over that portion of the investment.
If the undertaking makes that election, the undertaking shall apply the equity method to any remaining portion of its investment in an associate that is not held through a venture capital organisation, or a mutual fund, unit trust and similar undertakings including investment-linked insurance funds.
EXAMPLE: SPLIT HOLDING
Tatiana holds 20% of Marina’s company directly and another 10% through a venture capital fund. She has significant influence. For the 20%, she must use the equity method. For the other 10%, she can either use the equity method, or may elect to use fair value through profit or loss in accordance with IFRS 9.
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Classification as held for sale
An undertaking shall apply IFRS 5 to an investment, or a portion of an investment, in an associate, or a joint venture, that meets the criteria to be classified as held for sale .
Any retained portion of the investment that has not been classified as held for sale shall be accounted for using the equity method, until disposal of the portion that is classified as held for sale takes place.
After the disposal takes place, an undertaking shall account for any retained interest in the associate, or joint venture, in accordance with IFRS 9. If the retained interest continues to be an associate, or a joint venture, the undertaking uses the equity method.
EXAMPLE: HELD FOR SALE
Okcana owns 40% of an associate (and has significant influence).
1. She decides to sell 25% from the investment. She classifies the 25% as held for sale (see IFRS 5).
2. The remaining 15% is accounted for using the equity method until the 25% is sold.
3. When the 25% has been sold, the 15% is accounted for under IFRS 5.
Discontinuing the use of the equity method
An undertaking shall discontinue the use of the equity method from the date when its investment ceases to be an associate, or a joint venture, as follows:
(1) If the investment becomes a subsidiary, the undertaking shall account for its investment in accordance with IFRS 3 and IFRS 10.
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(2) If the retained interest in the former associate, or joint venture, is a financial asset, its fair value will be its initial recognition as a financial asset in accordance with IFRS 9. The undertaking shall record in profit or loss any difference between:
(i) the fair value of any retained interest, plus any proceeds from disposing of a part interest in the associate, or joint venture; and
(ii) the carrying amount of the investment at the date the equity method was discontinued.
EXAMPLE: RETAINED INTEREST IS A FINANCIAL ASSET
Reseda has an associate which is a listed company. She has shares worth 200 based on the equity method.
She sells 150 worth of shares for 300. She records the profit of 150 on the disposal.
She has remaining shares with a carrying value of 50. She does not have significant influence and fair values the shares under IFRS 9. This doubles their value: debit investment 50, credit profit 50.
EXAMPLE – Sale of investment
Cash
Investment in associate
Profit on disposal
I/B
B
B
I
EXAMPLE – Reclassification to investment (IFRS 9)
Investment
Investment in associate
I/B
B
B
DR
300
DR
50
CR
150
150
CR
50
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EXAMPLE – Revaluation of remaining investment
Investment
Revaluation gain
I/B
B
I
DR
50
CR
50
(3) When an undertaking discontinues the use of the equity method, the undertaking shall account for all amounts previously recorded 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.
Other Comprehensive Income (OCI) records the increases and decreases in revaluation and other reserves, excluding retained earnings. On disposal, such reserves relating to the investee are realised, liquidated and transferred to retained earnings. The movements are reported in the Statement of Changes in Equity. (IAS 1)
They do not reappear in the OCI during these transfers.
Therefore, if a gain or loss previously recorded in other comprehensive income by the investee would be reclassified to profit or loss on the disposal of the related assets or liabilities, the undertaking reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued.
For example, if an associate, or a joint venture, has cumulative exchange differences relating to a foreign operation and the undertaking discontinues the use of the equity method, the undertaking shall reclassify to profit or loss the gain, or loss, that had previously been recognised in other comprehensive income in relation to the foreign operation.
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EXAMPLE: SALE OF AN ASSOCIATE
Alena sells her associate worth 400 for 600. The 400 includes a property revaluation gain of 70 and cumulative exchange losses of 50. On disposal, these will be transferred directly to retained earnings.
Both were unrealised gains (recorded in OCI in the financial statements) that are now realised through the sale.
EXAMPLE – Sale of associate
Cash
Investment in associate
Profit on disposal
I/B
B
B
I
DR
600
CR
400
200
EXAMPLE – Reclassification of revaluation reserve
Revaluation reserve
Retained earnings
I/B
B
B
DR
70
CR
70
EXAMPLE – Reclassification of foreign exchange translation loss
Retained earnings
Retained earnings
I/B
B
B
DR
50
CR
70
If an investment in an associate becomes an investment in a joint venture, or vice versa, the undertaking continues to apply the equity method and does not remeasure the retained interest.
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Changes in ownership interest
If an undertaking's ownership interest in an associate, or a joint venture, is reduced, but the undertaking continues to apply the equity method, the undertaking shall reclassify to profit or loss the proportion of the gain, or loss, that had previously been recognised in other comprehensive income (OCI) relating to that reduction in ownership interest, if that gain, or loss, would be required to be reclassified to profit or loss on the disposal of the related assets, or liabilities.
EXAMPLE: CHANGE IN OWNERSHIP INTEREST
Alena sells 200 half of her associate (worth 400) for 300. The 400 includes a property revaluation gain of 70 and cumulative exchange losses of 50. On disposal, these will be transferred directly to retained earnings.
Both were unrealised gains (recorded in OCI in the financial statements) that are now half of each has been realised through the partial sale.
EXAMPLE – Sale of half of associate
Cash
Investment in associate
Profit on disposal
I/B
B
B
I
DR
300
CR
200
100
EXAMPLE – Reclassification of half of revaluation reserve
I/B DR
Revaluation reserve
Retained earnings
B
B
35
CR
35
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EXAMPLE – Reclassification of half of foreign exchange translation loss
Retained earnings
Retained earnings
I/B
B
B
DR
25
CR
25
Equity method procedures
Many of the procedures that are appropriate for the application of the equity method are similar to the consolidation procedures described in IFRS 10. Furthermore, the concepts underlying the procedures used in accounting for the acquisition of a subsidiary are also adopted in accounting for the acquisition of an investment in an associate, or a joint venture.
A group's share in an associate, or a joint venture, is the aggregate of the holdings in that associate, or joint venture, by the parent and its subsidiaries.
(The holdings of the group's other associates, or joint ventures, are ignored for this purpose.)
Associate, or joint venture, has subsidiaries, associates or joint ventures
When an associate, or a joint venture, has subsidiaries, associates or joint ventures, the profit or loss, other comprehensive income and net assets taken into account in applying the equity method are those recorded in the associate's, or joint venture's, financial statements
(including the associate’s, or joint venture’s, share of the profit or loss, other comprehensive income and net assets of the investee).
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Intercompany transactions
Gains and losses resulting from 'upstream' and 'downstream' transactions between an undertaking (including its consolidated subsidiaries) and its associate, or joint venture, are recognised in the undertaking's financial statements only to the extent of unrelated investors' interests in the associate, or joint venture.
' Upstream ' transactions are, for example, sales of assets from an associate, or a joint venture, to the investor.
'Downstream' transactions are, for example, sales or contributions of assets from the investor to its associate or its joint venture. The investor's share in the associate's, or joint venture's, gains or losses resulting from these transactions is eliminated.
Impairments identified in intercompany transactions
When downstream transactions provide evidence of a reduction in the net realisable value of the assets to be sold or contributed, or of an impairment loss of those assets, those losses shall be recognised in full by the investor.
When upstream transactions provide evidence of a reduction in the net realisable value of the assets to be purchased, or of an impairment loss of those assets, the investor shall recognise its share in those losses.
Contribution of a non-monetary asset lacks commercial substance
If a contribution of a non-monetary asset to an associate, or a joint venture, in exchange for an equity interest in the associate, or joint venture, lacks commercial substance, the gain or loss is regarded as unrealised and is not recognised, unless the exception below applies.
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Exception
If, in addition to receiving an equity interest in an associate, or a joint venture, an undertaking receives monetary or non-monetary assets, the undertaking recognises in full in profit or loss the portion of the gain or loss on the nonmonetary contribution relating to the monetary or non-monetary assets received.
Such unrealised gains, and losses, shall be eliminated against the investment accounted for using the equity method and shall not be presented as deferred gains, or losses, in the undertaking's consolidated statement of financial position, or in the undertaking's statement of financial position in which investments are accounted for using the equity method.
Acquisition date
An investment is accounted for using the equity method from the date on which it becomes an associate, or a joint venture. On acquisition of the investment, any difference between the cost of the investment and the undertaking's share of the net fair value of the investee's identifiable assets and liabilities is accounted for as follows:
(1) Goodwill relating to an associate, or a joint venture, is included in the carrying amount of the investment.
Amortisation of that goodwill is not permitted.
(2) Any excess of the undertaking's share of the net fair value of the investee's identifiable assets and liabilities over the cost of the investment (negative goodwill) is included as income in the determination of the undertaking's share of the associate, or joint venture,'s profit or loss in the period in which the investment is acquired.
Appropriate adjustments to the undertaking's share of the associate’s, or joint venture’s, profit or loss after acquisition are made in order to account, for example, for depreciation of the depreciable assets based on their fair values at the acquisition date.
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Similarly, appropriate adjustments to the undertaking's share of the associate’s, or joint venture’s, profit or loss after acquisition are made for impairment losses such as for goodwill or property, plant and equipment.
Reporting dates
The most recent available financial statements of the associate, or joint venture, are used by the undertaking in applying the equity method. When the end of the reporting period of the undertaking is different from that of the associate, or joint venture, the associate, or joint venture, prepares, for the use of the undertaking, financial statements as of the same date as the financial statements of the undertaking unless it is impracticable to do so.
When the financial statements of an associate, or a joint venture, used in applying the equity method are prepared as of a date different from that used by the undertaking, adjustments shall be made for the effects of significant transactions or events that occur between that date and the date of the undertaking's financial statements.
In any case, the difference between the end of the reporting period of the associate, or joint venture, and that of the undertaking shall be no more than three months . The length of the reporting periods and any difference between the ends of the reporting periods shall be the same from period to period.
Uniform accounting policies
The undertaking's financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances.
If an associate, or a joint venture, uses accounting policies other than those of the undertaking for like transactions and events in similar circumstances, adjustments shall be made to make the associate’s, or joint venture’s, accounting policies conform to those of the undertaking when the a ssociate’s, or joint venture’s, financial statements are used by the undertaking in applying the equity method.
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Cumulative preference shares of the investee
If an associate, or a joint venture, has outstanding cumulative preference shares that are held by parties other than the undertaking and are classified as equity, the undertaking computes its share of profit or loss after adjusting for the dividends on such shares, whether or not the dividends have been declared.
Losses exceed investment in investee
If an undertaking's share of losses of an associate, or a joint venture, equals or exceeds its interest in the associate, or joint venture, the undertaking discontinues recording its share of further losses.
The interest in an associate, or a joint venture, is the carrying amount of the investment in the associate, or joint venture, determined using the equity method together with any long-term interests that, in substance, form part of the undertaking's net investment in the associate, or joint venture.
For example, an item for which settlement is neither planned, nor likely to occur in the foreseeable future is, in substance, an extension of the undertaking's investment in that associate, or joint venture.
Such items may include preference shares and long-term receivables or loans, but do not include trade receivables, trade payables or any long-term receivables for which adequate collateral exists, such as secured loans.
Losses recognised using the equity method in excess of the undertaking's investment in ordinary shares are applied to the other components of the undertaking's interest in an associate, or a joint venture, in the reverse order of their seniority (ie priority in liquidation).
After the undertaking's interest is reduced to zero, additional losses are provided for, and a liability is recognised, only to the extent that the undertaking has incurred legal, or constructive, obligations or made payments on behalf of the associate, or joint venture. If the associate, or joint venture, subsequently reports profits, the undertaking resumes recording its share of those profits only after its share of the profits equals the share of losses not recognised.
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Impairment losses
After application of the equity method, including recording the associate’s, or joint venture’s, losses, the undertaking applies IAS 39 Financial Instruments to determine whether to record any additional impairment loss with respect to its net investment in the associate, or joint venture.
The undertaking also applies IAS 39 to determine whether any additional impairment loss is recorded with respect to its interest in the associate, or joint venture, that does not constitute part of the net investment and the amount of that impairment loss.
As goodwill that forms part of the carrying amount of an investment in an associate, or a joint venture, is not separately recognised, it is not tested for impairment separately .
Instead, the entire carrying amount of the investment is tested for impairment in accordance with IAS 36 as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, whenever application of IAS 39 indicates that the investment may be impaired.
An impairment loss is not allocated to any asset, including goodwill, that forms part of the carrying amount of the investment in the associate, or joint venture.
Any reversal of that impairment loss is recorded to the extent that the recoverable amount of the investment subsequently increases. In determining the value in use of the investment, an undertaking estimates:
(1) its share of the present value of the estimated future cash flows expected to be generated by the associate, or joint venture, including the cash flows from the operations of the associate, or joint venture, and the proceeds from the ultimate disposal of the investment; or
(2) the present value of the estimated future cash flows expected to arise from dividends to be received from the investment and from its ultimate disposal.
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Using appropriate assumptions, both methods give the same result.
The recoverable amount of an investment in an associate, or a joint venture, shall be assessed for each associate, or joint venture, unless the associate, or joint venture, does not generate cash inflows from continuing use that are largely independent of those from other assets of the undertaking.
Separate financial statements
An investment in an associate, or a joint venture, shall be accounted for in the undertaking's separate financial statements in accordance IAS 27 .
Self-Test Questions
1. Significant influence is the requirement for:
(i) Associates
(ii) Joint arrangements
(iii) Both
2. Significant influence requires at least 20% of the voting shares of an investee:
(i) True
(ii) False
3. The equity method is used for:
(i) Associates
(ii) Joint ventures
(iii) Both
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4. The exception for venture capital organisations, or mutual funds, unit trusts and similar undertakings, including investment-linked insurance funds means that
(i) They must use IFRS 9 FVTPL to value associates
(ii) They must use the equity method
(iii) They can use either method
5. Can an undertaking which has no subsidiaries use the equity method for its associates;
(i) Yes
(ii) No
6. Is goodwill relating to associates shown separately in the balance sheet (SFP):
(i) Yes
(ii) No
7. Is the goodwill amortised:
(i) Yes
(ii) No
8. Are impairment charges allocated to specific assets of an associate as required by IAS 36
(i) Yes
(ii) No
9. Are losses recorded when the cumulative losses are more than the investment in associate
(i) Yes
(ii) No
10. Is the equity method used for associates in Separate Financial Statements (IAS 27)
(i) Yes
(ii) No
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Answers
5
6
7
8
1
2
3
4
9
10 i ii ii ii i ii iii iii ii ii
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