S2 - associates and joint ventures

Question 1

what is an associate

Answer 1

an entity over which the investor has significant influence
The power ti participate in the financial operating policy decisions of the investee but is not control or joint control over these policies
20% of voting power

Question 2

what is the equity method

Answer 2

an investment associate should normally be accounted for
Method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post acquisition change in the investors share of the invests net assets
Profit or loss of the investor should include the investors share of the investees profit or loss
Investment made recorded at initial cost
Recognised in investors SOCI and added to carrying amount of the investment shown in the investors SOFP
Dividends subtracted from carrying amount
cost of investment is replaces with the share of the net assets of the associate
Don’t apply line by line consolidation - the associate isn’t part of the single entity group
Loans not removed but shown separately with the investment figure

Question 3

what are upstream and downstream transactions

Answer 3

between investor and associate
Unrealised profits should be eliminates to the extent of the investors interest in the associate
Upstream = associate sells goods to investor
Unrealised profit is subtracted from investors share of profit from associate
Sales and cost of sales are not eliminated
downstream = investor sells goods to associate
Unrealised profit is subtracted from gross profit and investment in associate

Question 4

what are joint arrangements

Answer 4

two or more parties have joint control
Contractually agreed sharing of control of an arrangement which exists only when decisions about the relevant captivities require the unanimous consent of the parties sharing control
Joint operation = parties have rights to the assets and obligations for the liabilities relating to the arrangement
Joint ventures = parties have rights to the net assets of the arrangement
Investment in its own statements
Accounted for by equity method
Disclose assumptions, nature and extent, risks