Unit 5 Flashcards
Investment in Associates
Chapt 54
IAS 28
ASPE 3051
What is an associate
An associate is an entity where and investor has significant influence. It is usuallly depicted with 20-50% voting shares in the coy =
Equity method = IFRS
Equity, Cost, Fair value (Public coy) = ASPE
Above 50% is control of subsidiary = Consolidation
Below 20% = FV P/L or FVOCI
Joint method = Equity method (one line consolidation)
What are the criteria for significant influence
- Significant transactions between both entities
- Representation on the board
- Participation in policy making process and decisions about dividends
- Interchange of managerial personnel
- Provision of essential technical information
Conditions causing No significant influence even above 20% ownership
- Another individual controls a major block
- Investors does not have a seat on the board
Initial measurement
Capitalize
IFRS
Cost + txn cost (optional)
ASPE
Cost + txn cost (only if subsequent is NOT at FV)
Subsequent measurement
Equity method
Dr Investment Asset : Share of income
Cr Equity Income: Share of income
Dr Cash : Dividend received
Cr Investment asset : Dividend recvd
Difference ASPE / IFRS
IFRS : Equitty method
ASPE : Equity, Cost or FV (public traded coy)
ASPE : For publi traded coy, option of equity or FV
JEs for cost method
- Capitalize txn cost if @ arms length and not measured at FV in future
- Dr Cash : Dividend received
Cr Dividend Income: Dividend recvd - Investment asset a/c shows only initial cost
JEs for FV method
- Expense txn cost
-Dr Cash : Dividend received
Cr Dividend Income: Dividend recvd - Dr Investment Asset : Subsequent FV
- Cr Holding Gain / loss : Subsequent FV
How is investment is a coy with common shares of $120k and retained earnings of $150k measured
Add 120k and 150 k and multiply by % holding
Both shares and retained earnings = Equity
