Investments – Equity method (IFRS)

Question 1

Investments – Equity method (IFRS)

Answer 1

• IAS 28: an entity with significant influence over an investee shall treat the investee as an associate and account for its investment in the associate using the equity method
• Significant influence can be demonstrated by owning (directly or indirectly) 20% or more of the voting power of the investee
• The entity may be able to demonstrate influence, even with less than 20% ownership. Evidence of influence can include:
  o Representation on the board of directors
  o Participation in policy-making processes
  o Material transactions between the entity and its investee
  o Provision of essential technical information
• Under the equity method, the investment is initially recognized at cost, and is adjusted for the post-acquisition change in the investor’s share of the investee’s net assets

Reference: IAS 28