IAS 28- Investments in associates and joint ventures Flashcards
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
▪ 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
If you have as associate, how is this shown in your accounts?
Under NCA
- Investment in Associates
For associates some of the workings are the same as for a subsidiary, which workings are the same
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.
For associates, extra working 6/7 is required- “Equity Accounting”
what is this formula
Cost of investment in X
Our share of post acq reserves (w5)
Less: Impairment of associate’s goodwill
=Investment in associate
what % of shareholding is assumed to give investing company influence
A shareholding of between 20% and 50% is assumed to give the investing company significant influence over its investment.
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According to IAS 28, how is associate shown in CSPL ?
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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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
you adjust in the same way as for a subsidiary
Equity accounting: further aspects
for balances with the associates between the group companies and the associate, how is this treated
Generally the associate is considered to be outside the group, therefore the balances between group companies and the associate will remain in the CSFP
Equity accounting: further aspects
Regarding sales from and to associates, how are they treated (no closing invenotry remaining)
They are left in the CSoProfit/Loss
Equity accounting: further aspects
Regarding sales from and to associates, how are they treated with closing inventory remaining
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