19 Associates

Question 1

What is the definition of an associate?

Answer 1

An associate is an entity over which the investor has significant influence

Question 2

What is the definition of significant influence?

Answer 2

Significant influence is the power to participate in the financial and operating policy decisions of the investee

Question 3

What are the percentages of holding for significant influence?

Answer 3

Where investor holds 20-50% of ordinary share capital of invest

Question 4

How does equity accounting work?

Answer 4

Do not consolidate line by line, line in P&L for share of associate profit, line in BS showing investment in associate and value of investment in associate is enhanced by parents share of post-acquisition reservces

Question 5

What is W1?

Answer 5

Group structure

Question 6

What is W5?

Answer 6

Consolidated reserves

Question 7

How is W5 calculated?

Answer 7

100% of parents reserves + P% of post acquisition reserves plus impairment of investment in associate

Question 8

What is W6?

Answer 8

Investment in associate

Question 9

How is W6 calculated?

Answer 9

Cost of investment + P% of A’s post-acquisition - impairment of investment in associate - PURP adjustment

Question 10

How is inter-company transactions treated?

Answer 10

Do not eliminate balances and trading, remove dividends received. PURP adjustment required

Question 11

How is PURP calculated in associates?

Answer 11

Calculate the same as subsidiary but only recognise parents share.
Reduce group retained earnings, reduce investment in associate and reduce share of associate profit.

Question 12

How is the share of associate profit calculated?

Answer 12

Parent share if associate less impairment for the year and PURP adjustments