Associates and Joint arrangements ch20 Flashcards
What is an associate?
An entity over which another entity has significant influence
What is “significant influence”?
It is the power to participate in operating and financial policy setting desicions but not having control of over the desicion.
The investor’s profit or los includes:
its share of the investee’s profit or loss and its share of the investee’s OCI
How is dividend income from an associate eliminated when preparing the investor’s financial statement?
It is done by DEBITING the dividend income already accounted earlier (bringing it to nil) and CREDITING share of profit of associate and DEBITING investment in associate. The increase in investment in associate is the difference between the share of the profit from associate and the dividend already received.
What hapens with unrealised profits from an upstream transaction between parent and associate?
The unrealised profit is deducted from investor’s share of profit from associate and therefore the investment in associate is reduced as well. (I.e. both reduced on SFP and SCI.)
How is unrealised profits handeled when a downstream transaction has taken place between parent and associate?
Unrealised profit is deducted from parent’s account by increasing the CoS and subtracting from the investment in associate. (A subtraction bot on SFP and SCI here as well. But dealt with differently on the SCI)
Joint arrangement =?
a contractual agreement & arrangement of which two or more parties have joint control.
Joint control =?
The contractually agreed sharing of control over an arrangement
The two types og joint arrangements are…?
Joint operations and joint venture
How do you account for a JV?
The JV prepares its own financial statements and the venturer’s financial statements account for the investment in the JV with the equity method.
