Unit 5

Question 1

Investment in Associates

Answer 1

Chapt 54
IAS 28
ASPE 3051

Question 2

What is an associate

Answer 2

Equity method = IFRS
Equity, Cost = ASPE
Equity, Fair value = ASPE (Public coy)

Above 50% is control of subsidiary = Consolidation
Below 20% = FV P/L or FVOCI

Joint method = Equity method (one line consolidation)

Question 3

What are the criteria for significant influence

Answer 3

• 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

Question 4

Conditions causing No significant influence even above 20% ownership

Answer 4

• Another individual controls a major block
• Investors does not have a seat on the board

Question 5

Initial measurement

Answer 5

Capitalize
IFRS
Cost + txn cost (optional)
ASPE
Cost + txn cost (only if subsequent is NOT at FV)

Question 6

Subsequent measurement
Equity method

Answer 6

Dr Investment Asset : Share of income
Cr Equity Income: Share of income

Dr Cash : Dividend received
Cr Investment asset : Dividend recvd

Question 7

Difference ASPE / IFRS

Answer 7

IFRS : Equity method
ASPE : Equity, Cost or FV (public traded coy)

ASPE : For public traded coy, option of equity or FV

Question 8

JEs for cost method

Answer 8

• 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

Question 9

JEs for FV method

Answer 9

• Expense txn cost
  -Dr Cash : Dividend received
  Cr Dividend Income: Dividend recvd
• Dr Investment Asset : Subsequent FV
• Cr Holding Gain / loss : Subsequent FV

Question 10

How is investment is a coy with common shares of $120k and retained earnings of $150k measured

Answer 10

Add 120k and 150 k and multiply by % holding
Both shares and retained earnings = Equity