IAS 28- Investments in associates and joint ventures Flashcards

1
Q

A shareholding of between 20% and 50% is assumed to give the investing company significant influence over its investment.

This means it is treated as an associate and equity is accounted for in accordance with IAS 28

IAS 28 states that significant influence can be shown by:

5 things

A

▪ Representation on the board of directors
▪ Participation in the policy making processes
▪ Material transactions between the investor and investee
▪ Interchange of managerial personnel
▪ Provision of essential technical information

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2
Q

If you have as associate, how is this shown in your accounts?

A

Under NCA

- Investment in Associates

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3
Q

For associates some of the workings are the same as for a subsidiary, which workings are the same

A

Group structure, net assets, Group Reserves and goodwill calculations are all calculated in the same way as they would be for a subsidiary.

NO non-controlling interest calculation is needed.

An extra working (W7) is required.

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4
Q

For associates, extra working 6/7 is required- “Equity Accounting”

what is this formula

A

Cost of investment in X
Our share of post acq reserves (w5)
Less: Impairment of associate’s goodwill

=Investment in associate

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5
Q

what % of shareholding is assumed to give investing company influence

A

A shareholding of between 20% and 50% is assumed to give the investing company significant influence over its investment.

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6
Q

.

A

.

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7
Q

.

A

.

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8
Q

According to IAS 28, how is associate shown in CSPL ?

A

No line by line consolidation.

i.e. A a separate line

'’Share of profit/loss of an associated company’’

A Parent’s % ownership of the associates profit after tax since acquisition

  • Minus

PURP if A sells to P

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9
Q

.

A

.

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10
Q

.

A

.

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11
Q

.

A

.

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12
Q

Equity accounting: further aspects

if the fair value of the associate’s net assets at acquisition are materially different from book value,

what do you do

A

you adjust in the same way as for a subsidiary

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13
Q

Equity accounting: further aspects

for balances with the associates between the group companies and the associate, how is this treated

A

Generally the associate is considered to be outside the group, therefore the balances between group companies and the associate will remain in the CSFP

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14
Q

Equity accounting: further aspects

Regarding sales from and to associates, how are they treated (no closing invenotry remaining)

A

They are left in the CSoProfit/Loss

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15
Q

Equity accounting: further aspects

Regarding sales from and to associates, how are they treated with closing inventory remaining

A

the only adjustments are in respect of any closing inventory that remains from intercompany transactions

Unrealied profit in closing inventory arising from sales between group and associates should be eliminated… BUT only adjust for Parent’s % of PUP

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16
Q

when working with unrealised profits between associates, what is the most important thing to remember

A

.only the GROUP’S share of the associate is calculated

Unsold inventory X Mark up/Margin X Group share

17
Q

If an associate sells to the parent, what is the accounting adjustment?

I.e. associate has the profit on inventory that are still in the group, within the inventory of the parent

A

Dr group retained earnings (cancel profits on goods still in the group)

Cr Group inventory (Reduce goods to cost to the group-Because we have this inventory in stock!)

18
Q

If an parent sells to the associate, what is the accounting adjustment?

I.e. parent has recognised the profit on inventory that will be brought back into the group within the share of net assets of the associate

A

Cr Investment in associate (Reduces goods to cost to the group & NOT adjust inventory as for subsidiaries because for Associates we do Equity accounting)

Dr group retained earnings (cancel profits on goods still in the group)

19
Q

For intercompany transactions between parent and associate,

what is the accounting adjustment in CSPL

A

Deduct from share of associates profit (W3)