F2 - 5. Associates + Joint Ventures

Question 1

What is an associate?

Answer 1

Any entity over which the investor has significant influence

Question 2

What is significant influence? (IAS28)

Answer 2

The power to participate in financial operating policy decisions

Question 3

For what percentage ownership do we, in general, assume significant influence exists?

Answer 3

20 - 50%

Question 4

What 4 things, other than 20-50% ownership, can show significant influence?

Answer 4

1. Representation on the board of directors
2. Participation in policy making
3. Material transactions
4. Provision of essential tech information

Question 5

What are the 3 methods that a parent can choose to reflect their investment in an associate at in their own individual accounts?

Answer 5

1. At cost
2. At fair value
3. Using the equity method

Question 6

What method must be used to account for associates in the consolidated financial statements?

Answer 6

The equity method

Question 7

What is the equity method calculation for the group investment in an associate?

Answer 7

Cost of investment
+ Group share or post acqn profits
- Impairment losses on associate
- dividends received from associate

Question 8

How are profits from associates accounted for in the group statement of profit or loss?

Answer 8

Groups % of Associates Profits AFTER tax added to group profits BEFORE tax

Question 9

How do we treat intragroup trading for an associate?

Answer 9

No adjustment - NOT a group company

Question 10

How do we treat unrealised profits and losses on transactions with an associate, if the parent sold to the associate?

Answer 10

Dr P’s COS / Retained Earnings PUP x A%

Cr Investment in Associate PUP x A%

Question 11

How do we treat unrealised profits and losses on transactions with an associate, if the associate sold to the parent?

Answer 11

Dr Share of A’s Profit / P’s Retained earnings PUP x A%

Cr Group Inventories PUP x A%

Question 12

What is a joint arrangement?

Answer 12

An arrangement over which two or more parties have joint control, needing unanimous consent to make business decisions

Question 13

What are the 2 types of joint arrangement?

Answer 13

1. Joint operations

2. Joint ventures

Question 14

What is a joint operation?

Answer 14

Where two parties have rights/obligations to the assets/liabilities relating to the arrangement, but no separate entity is created

Question 15

How is a joint operation accounted for?

Answer 15

The parties will reflect their share of assets, liabilities, revenue and expenses in its own separate accounts

Question 16

What is a joint venture?

Answer 16

Parties have joint control and rights to the net assets of the arrangement, creating a separate legal entity which prepares its own financial statements

Question 17

How is a joint venture accounted for?

Answer 17

The equity method

Question 18

How do we treat unrealised profits and losses on transactions with a joint venture, if the parent sold to the joint venture?

Answer 18

Dr P’s COS / Retained Earnings PUP x JV%

Cr Investment in the JV PUP x JV%

Question 19

How do we treat unrealised profits and losses on transactions with a joint venture, if the joint venture sold to the parent?

Answer 19

Dr Share of profit of the JV / P’s Retained Earnings PUP x JV %
Cr Group Inventories PUP x JV%