Associates And Joint Arrangements

Question 1

IFRS 10 - Consolidated Financial Statements:

Answer 1

When an entity acquires 50% or more of the equity share of another entity, it is assumed that a parent-subsidiary relationship exists.
In that case there is a requirement to prepare consolidated accounts.

In case of 20% to 50%, the investor has no control, only Significant Influence, over the financial and operating policies of the investee. (IAS 28 Associates and Joint Ventures)

Question 3

Joint venture versus Joint Operation:

Answer 3

Joint venture: the parties have rights to the net assets of the arrangement Each entity accounts for its interest using the equity method.

Joint operation: IFRS standards are used to to decide what assets, liabilities etc the interest of each entity accounts for.

Question 4

What does IAS 27 cover:

Answer 4

Separate financial statements, which provides guidance on how parent entities should account for subsidiaries, associates and joint ventures in their individual financial statements.

Question 5

How to account for investments in subsidiaries, joint ventures, when an entity prepares separate financial statements (IAS 27):

Answer 5

• At cost, or
• In accordance with IFRS 9, Financial Instruments, or
  This is either assets measured at FVOCi (Fair Valid through Other Comprehensive Income) or
  At FVPL (Fair Value through thr profit or loss)
• Using the equity method - IAS 28

The same method should be used for each category of investment.

Question 6

What is the scope of IAS 28

Answer 6

• How to apply the equity method on investments in Associates and Joint Ventures
• how to account if the investor owns 20% to 50% of the voting power = significant influence

Question 8

What is a subsidiary:

Answer 8

If the investor has significant control over the entity, by having more than 50% of the voting rights.

Question 9

What is an associate:

Answer 9

When the investor doesn’t have significant control, but still has significant influence, by having 20% to 50% of the voting rights.

Question 10

How to calculate the investment in an associate:

Answer 10

Use the Equiry method of accounting:

Single line entry by using Non-current assets section in SFP =

Cost of investment
+
Group share of associates post-acquisition reserves
-/-
Dividends received from assoxiate

= Carrying amount (IAS 28)

Question 11

What includes the Cost of the investment:

Answer 11

• Purchase Price
• Professional fees
• Other transaction costs

Question 12

How is the Group Share of the associates post-acquisition reserves calculated:

Answer 12

Investor’s percentage of ownership *
Post-acquisition reserves

Question 13

How are the following items recognised in the financial statements of the investor:
- Share of profits in associate
- Share of associate’s OCI

Answer 13

• Share of profits = single line just above Profit before Tax
• Share of ass OCI = single Line just below Net Proft for the Year after tax