Associates and joint arrangements

Question 1

Definition of Association:

Answer 1

An entity over which investor has significant influence.

Question 2

Definition of significant influence:

Answer 2

The power to participate in the financial and operating policy decisions of the investee but is not control or joint control over these policies.

Question 3

Significant influence can be shown by:

Answer 3

• Representation on the board of directors
• Participation in policy-making processes
• Material transactions between entity and investee
• Interchange of managerial personnel
• Provision of essential technical information

Question 4

Investments in subsidiaries, associates and joint ventures can be carried in investor’s separate financial statements @:

Answer 4

@ cost
@ fair value (IFRS 9 Financial Assets)
@ Equity method (IAS28 Investments in Associates and Joint Ventures)
- Investment in associate only likely be carried using equity method in parent’s separate financial statements if parent has no subsidiaries and therefore does not prepare group accounts.

Question 5

Definition of Equity Method as per IAS28:

Answer 5

-A method of accounting whereby investment is initially measured at cost and adjusted thereafter for post-acquisition change in investor’s share of investee’s net assets.
-The investor’s profit or loss includes its share of investee’s profit or loss and the investor’s other comprehensive income includes its share of the investee’s other comprehensive income

Question 6

Definition of Joint Arrangements (IFRS11):

Answer 6

An arrangement of which two or more parties have joint control

Question 7

Definition of Joint Control (IFRS11):

Answer 7

The contractually agreed sharing of control of an arrangement, which exists only when decisions about relevant activities require unanimous consent of parties sharing control.

Question 8

Characteristics of a Joint arrangement (IFRS11):

Answer 8

• Parties are bound by a contractual agreement
• Contractual arrangement gives two or more parties joint control of arrangement

Question 9

Two Types of Joint arrangement:

Answer 9

1.) Joint operation = whereby parties that have joint control of arrangement have rights to assets, and obligations for liabilities, relating to arrangement.
2.) Joint venture = joint arrangement whereby parties that have joint control of arrangement have rights to the net assets of arrangement.