Investment In Associate Flashcards
Investment In Associate
A holding of 20% or more of the voting power (directly or through subsidiaries) will indicate significant influence unless it can be clearly demonstrated otherwise.
The power to PARTICIPATE in the financial and operating policy decisions of an entity
The investor should use the equity method to account for its investment UNLESS
circumstances indicate that it is unable to exercise “significant influence” over the investee
If the holding is less than 20%, the investor will be presumed not to have significant influence unless such influence can be clearly demonstrated.
Investment In Associate
There are instances wherein an investor may have significant influence even if it has less that 20% voting power, such as the following:
a. Representation on the board of directors
b. Participation in the policymaking process.
c. Material transactions between the investor and the investee.
d. Interchange of managerial personnel.
e. Provision of essential technical information.
Investment In Associate
Investments in associates are accounted for using the_____ method and shall be classified as______ asset
Equity Method, Non-current asset
Kay Equity method, kasi based sa relationship between the investor and associate/investee.
They are viewed as single economic unit, meaning they are one and the same.
Investment In Associate
The investor’s share in net income of loss is recognized as_____
While the dividends received from the associate______
Investment income/Loss
reduce the carrying amount of the investment
Investment In Associate
INITIAL MEASUREMENT:
At the DATE OF ACQUISITION, the cost of the investment might be different from the entity’s share in the net fair value of the associates, identifiable net assets. Possible reasons are over or undervaluation of assets and liabilities.
So, cost of investment (purchase price)>FV of net assets acquired, the excess is 1.______
if cost of investment (purchase price)<FV of net assets acquired =? 2.______
- Goodwill
-should not be recognized (unless business comb) - NOT accounted separately (Parang wala lang. Walang goodwill sa Invt. Assoc. only in Business Comb) - Gain on bargain purchase
-included in the total Investment Income IN THE YEAR INVESTMENT WAS MADE
Investment In Associate
So how to compute FV on Net Assets?
BV of Asset - BV of Liabs xx
Asset:
Undervaluation xx
Overvaluation (xx)
Liabs:
Undervaluation (xx)
Overvaluation xx
=FV on Net Assets
Then multiple sa percentage na binili, in order to compute the interest acquired.
Investment In Associate
- Explain Share in P/L
- Explain if the ownership starts in mid of the year
- How to compute adjusted NI of Investee?
1&2. Share in PL = Adjusted NI x ownership x # of mos/12
3.
Unadjusted NI xx
Asset 100%:
Undervaluation (xx)
Overvaluation xx
Liabs 100%:
Undervaluation xx
Overvaluation (xx)
Adjusted NI
IMPT! IDEDEDUCT PA DYAN YUNG one year PREFERENCE SHARE DIVIDENDS kung meron:
If cumulative - Whether declared or not!
non-cumulative - declared ONLY!
NOTE TO REMEBER THE FORMULA:
1. Kabaligtaran lang yan ng computaion of FV of net asset
2. Pwede mong iilustrate muna, ex. asset depreciation if BV vs. FV
Investment In Associate
What should happen when the financial statements of an associate are not prepared at the same
date as the financial statements of the investor?
The associate should prepare financial statements for the use of the investor at the same
date as that of the investor
Investment In Associate
If the investor ceases to have significant influence over an associate, how should the investment be treated?
It should be treated in accordance with PFRS 9
FVPL/FVOCI
Investment In Associate
Sell of Investment in Equity Securities.
Dividend On - Yung puhunan mo ay Shares at Dividends
Ex Dividend - Share amoung lang puhunan mo.
Mahalaga to sa pag alam ng gain/loss selling.
