Investment in Associate Flashcards
Significant Influence
What percentage?
Evidence of Significant Influence (PaReMaI Provision)
20% or more of voting power (ordinary shares + warrant / options)
Evidence
- Participation in policy making process
- Representation in the board of directors
- Material transactions between the investor and the investee
- Interchange of managerial personnel
- Provision of essential technical information
Presentation of Investment in Associate
Presentation in FS
- non current asset unless NCAFS
Initial Measurement of Investment in Associate
How to compute goodwill / GBP?
Treatment for goodwill / GBP?
Cost + Transaction Cost
Computation of Goodwill / GBP
- Cost less Share in FVNA
- Share in FVNA (Share in BV + Share in Undervaluation)
Treatment of Goodwill / GBP
- Goodwill = not amortized (impairment test)
- GBP = added to investment income
Remember the T-account.
Remember how to solve investment income.
Subsequent Measurement of Investment in Associate
How to compute investment income? (visualize in your mind)
Treatment of amortization of SHIU and Preference Share
Equity Method
Treatment (Amortization of SHIU)
- depreciable = amortized over life
- land / inventory = amortized when sold
Treatment (Preference Share)
- cumulative = declared or not
- noncumulative = declared only
4 Scenarios When Equity Method is Not Required
- investor is a subsidiary
- investor’s instruments are not traded
- investor did not file (is not filing) its FS with the regulatory organizations
- investor’s parent produces consolidated FS available for public use
Impairment
Carrying Amount > Recoverable Amount
Recoverable Amount (higher of)
- FV less cost
- Value in use
Discontinuance of Equity Method
- Loss of significant influence
- From equity method to FVPL/FVOCI
- CA of investment v FV - P/L
What is the formula?
Upstream and Downstream
Unrealized - Upstream / Downstream
Who will adjust?
- investor the one on top
- eliminate unrealized P/L (from transactions between investor and investee)
- realized P/L = sold to 3rd party or as the thing is depreciated
Unrealized P/L
- upstream = multiply to % of ownership
- downstream = no % of ownership
kung sino nagbenta, siya mag-aadjust
Heavy Losses
What to do?
- Until investment account balance is zero
- If there’s income, reverse first the losses in the previous years
Achieved in Stages
How to Compute for Total Cost of Investment?
How to compute for Goodwill / GBP?
TOTAL COST OF INVESTMENT
= FV of Orig Investment + FV of New Investment
Total Cost of Investment vs Carrying Amount of NA
- goodwill / GBP
Remember
Difference in Reporting Period
Difference in Accounting Policy
Difference in reporting period
- not more than 3 months
Difference in accounting policy
- associate should adjust
