Associates and Joint Ventures Flashcards
What accounting standard is used for associates and joint ventures?
IAS 28 Investments in Associates and Joint Ventures
What level of ownership is generally presumed to imply significant influence?
Owning at least 20% of the voting power of ordinary shares
List some evidence of significant influence
Board representation, participation in policy-making, material transactions, interchange of personnel, and provision of essential technical information.
What method is typically used to account for investments in associates?
The Equity Method
Under the Equity Method, how is an investment initially recognised?
At cost, including a share in changes in the associate’s net assets
Does goodwill in associates undergo an annual impairment test?
No, goodwill in associates is not separately recognised or subject to an annual impairment test.
How are dividends from an associate treated in financial statements?
Dividends are subtracted from the carrying amount of the investment
Define “upstream” transaction
A sale of goods by the associate to the investor
Define “downstream” transaction
A sale of goods by the investor to the associate
What adjustments is made in upstream transactions for unrealised profits?
Subtract the unrealised profit from the investor’s share of profit from associates
What are the two types of joint arrangements under IFRS 11?
Joint Operations (JO) and Joint Ventures (JV)
Describe a Joint Operation
A joint arrangement where parties share rights to gross assets and liabilities of the operation
Describe a Joint Venture
A joint arrangement where parties share rights to net assets, often a separate entity
How should each joint operator recognise its share in a Joint Operation?
By recognising its share of assets, liabilities, revenue, and expenses in its financial statements.
How are investments in a Joint Venture accounted for?
Using the Equity Method
