Chapter 8 - Group Accounts Associates Flashcards
Ownership in Associates
20% to 50% Ownership
Definition of an Associate
An entity over which the investor has significant influence
IAS28
What is significant influence
The power to participate in the financial and operating policy decisions but does not constitute control
Accounting Treatment of Associate
Equity Accounting
Equity Accounting for Associates
Group share of net assets
Group share of net income
No line-by-line aggregation of the Associate’s accounts
Intra-group balances and transactions
The transactions are not eliminated
Intra-group unrealized profits
IAS28 - Unrealized profits on trading should be removed based on investor’s share
Unrealized Profit Adjustment = Group %age Share x unrealized profits
Impairment of investment value
The impaired amount is taken off of the investment in the Associate in the group’s accounts
Associate profits
Group’s share of the Associate’s profit are included in consolidated income Statement
Dividends from Associates
Dividends received from Associates are excluded from consolidated income Statement
Financial treatment of impairment of Goodwill
DR / Operating Expenses
CR / Investment in Associate
Group adjustments to retained earnings
Group share of post acquisition profits
Goodwill impairment
Dividends received
Calculating share of Associate profits
Retained earnings of Associate at year end Less: Retained earnings at acquisition Equals: Post acquisition profits Multiply: %age share by post acquisition profits
Financial treatment of unrealized profits
DR / Group Cost of Sales
CR / Investment in Associate
Financial treatment of unrealized profits if Associate sells to Parent
DR / Share of Associate’s profit
CR / Group Inventory
