12. Associates and Joint arrangements Flashcards
Define Associate
An entity over which the investor has significance influence
Define significant influence
Power to participate in the financial and operating policy decisions of the investee but not control or joint control
How can significant influence be shown
- Representation on the board
- Participation in policy making
- Material transactions between entity and investee
- Interchange of mangerial personnel
- Provision of essential technicial info
How does IAS 28 explain whether significant influence exists of voting power
More than 20% voting power = typically shows significant influence
Less than 20% voting power = no significant influence
What are the three ways investments in subsidiaries, associates and joint ventures be recorded
At Cost
At fair value
Using equity method
What is the equity method
A method of accoutning whereby the investment is initially measured at cost and adjusted thereafter for the post acquisition change in the investor’s share of the investee’s net asssets.
The investory’s profit or loss includes its shares of profit and loss and other comp income
What is the proformna for consolidated statement of financial position for Associate
Non current assets : Investment in associate X
Working: Investment
What is the workign for investment in associate when shown in non current assets
Cost of associate
Share of post acquisition retained earnings and reserves
Less impairment losses on associate to date
= Investment in associate
Where are the two places the group share of associate is shown in SOFP
- As separate line in NCA
- As part of consolidated Retained earnings
What is the workign for investment in associate when shown in consolidated retained earnings
- Add together profit at year end
- Less provision for unrealised profit of subsidiary/parent
- Less fair value adjustments movement of Subsidiary
- Less profits at acquisition
- take group share of revisied
How are intra company transactions dealt with for asssociates
Do not need to be cancelled out
What is the accounting entry for cancelling out unrealised profits when P sells to A
Debit Consolidated Earnings
Credit Investments in associate
What is thea ccoutning entry for unrealised profit if A sells to P
Debit consolidated retained earnings of P
Credit consolidated inventories
Which two lines is group share of associate shown in the SPLOC
- In profit or loss: group share of associate’s profit is shwon on separate line before group profit before tax
- In other comp income: show the group’s share of OCI as a seperate line
What is the accounting entry to cancel out unrealised profit in the SPLOCI if parent sells good to associate
Debit Consolidated cost of sales
Credit investment in associate
What is the accounting entry to cancel out unrealised profit in the SPLOCI if parent sells good to associate
Debit Group share of associate’s profit
Credit consolidated inventories
Define joint arrangements
An arrangement in which two or more parties have koint control
Define joint control
The contractually agreed sharing of control of an arrangement which exist when deicsions about relevant activities requires unanimous consent
What are two characteristics of joint arrangements
- The parties are bound by contractual arrangement
- The contractual arrangement gives two or more parties joint control
What are the two types of joint arrangements
Joint oepration
Joint venture
What is joint operation
A joint arrangement whereby the parties that hae joint control of the arrangement have teh rights to the assets, obligations for liabilities
What is joint venture
Where parties have riights to the net assets of the arrangement
If a joint arrangement is not structured through seperate vehicle then what joint arrangment is it
JOint operation
If joint arrangement is structured through seperate vehicle what joint arrangement is it
Other factors must be consdiered to decide if it is a joint venture or joint operation
How is accouting treatment for joint operations
- Separate financial statements
- Recognise its own assets, liabilities and expenses
- Its share of assets held
- Its revenue from the sale
How is joint venture accounted for
When using equity method:
In consolidated SOFP: investment in joint venture & share of joint venture’s post acquisition resvers
- In consolidated SPLOCI: Share of joint venture’s profit for year & share of OCI
