Scribd Logo
Upload

Welcome to Scribd!

  • 21 views

    Notes For Ia

    Uploaded by

    Hassan Adam
    1. The equity method of accounting should be used for investments in associates, which are entities over which an investor has significant influence, generally through a 20% or more voting interest. 2. Under the equity method, the investment is initially recorded at cost and subsequently adjusted to recognize the investor's share of the associate's net profits or losses. Distributions received reduce the carrying amount. 3. On acquisition, any difference between cost and the investor's share of the fair value of the associate's identifiable assets and liabilities is accounted for according to business combination accounting rules.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Notes For Ia

    Uploaded by

    Hassan Adam
    21 views3 pages
    1. The equity method of accounting should be used for investments in associates, which are entities over which an investor has significant influence, generally through a 20% or more voting interest. 2. Under the equity method, the investment is initially recorded at cost and subsequently adjusted to recognize the investor's share of the associate's net profits or losses. Distributions received reduce the carrying amount. 3. On acquisition, any difference between cost and the investor's share of the fair value of the associate's identifiable assets and liabilities is accounted for according to business combination accounting rules.

    Original Title

    notes for ia

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    1. The equity method of accounting should be used for investments in associates, which are entities over which an investor has significant influence, generally through a 20% or more voting interest. 2. Under the equity method, the investment is initially recorded at cost and subsequently adjusted to recognize the investor's share of the associate's net profits or losses. Distributions received reduce the carrying amount. 3. On acquisition, any difference between cost and the investor's share of the fair value of the associate's identifiable assets and liabilities is accounted for according to business combination accounting rules.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    21 views3 pages

    Notes For Ia

    Uploaded by

    Hassan Adam
    1. The equity method of accounting should be used for investments in associates, which are entities over which an investor has significant influence, generally through a 20% or more voting interest. 2. Under the equity method, the investment is initially recorded at cost and subsequently adjusted to recognize the investor's share of the associate's net profits or losses. Distributions received reduce the carrying amount. 3. On acquisition, any difference between cost and the investor's share of the fair value of the associate's identifiable assets and liabilities is accounted for according to business combination accounting rules.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 3

    CHAPTER 17: INVESTMENT IN ASSOCIATES (PAS 28)

    Identification of Associates

     A holding of 20% or more of the voting power (directly or through subsidiaries) will indicate significant
    influence unless it can be clearly demonstrated otherwise.
     If the holding is less than 20%, the investor will be presumed not to have significant influence unless such
    influence can be clearly demonstrated.
     The existence of significant influence by an investor is usually evidenced in one or more of the following
    ways:
    1. Representation on the board of directors or equivalent governing body of the investee.
    2. Participation in the policymaking process.
    3. Material transactions between the investor and the investee.
    4. Interchange of managerial personnel.
    5. Provision of essential technical information.

    Accounting for Associates

    ▪ In its consolidated financial statements, an investor should use the equity method of accounting for investments in
    associates, unless:

    1. An investment in an associate that is acquired and held exclusively with a view to its disposal within 12
    months from acquisition should be accounted for as held for trading under PFRS 9 (FVPL).
    2. A parent exempted from preparing consolidated financial statements by PAS 27 may prepare separate
    financial statements as its primary financial statements.
    3. An investor need not use the equity method if all of the following four conditions are met:

    a. The investor is itself a wholly owned subsidiary or is a partially owned subsidiary of another
    entity and its other owners.
    b. The investor's debt or equity instruments are not traded in a public market.
    c. The investor did not file, nor is it in the process of filing, its financial statements with a securities
    commission or other regulatory organization for the purpose of issuing any class of instruments in
    a public market.
    d. The ultimate or any intermediate parent of the investor produces consolidated financial statements
    available for public use that comply with PFRS.

    Applying the Equity Method of Accounting

    ▪ Basic principle - The equity investment is initially recorded at cost and is subsequently adjusted to reflect the
    investor's share of the net profit or loss of the associate.

    ▪ Distributions and other adjustments to carrying amount Distributions received from the investee reduce the
    carrying amount of the investment. Adjustments to the carrying amount may also be required arising from other
    changes in the investee's equity (examples are revaluation surplus and translation gains and losses).
    ▪ An associate with outstanding preference shares

    1. The investor computes its share of profits or losses after adjusting for the dividends on such shares, whether
    or not the dividends have been declared on cumulative preference shares.
    2. However, if the preference shares are non-cumulative, adjustments for dividends are made only if there is a
    declaration.

    ▪ Implicit goodwill and fair value adjustments

    On acquisition of the investment, any difference between the cost of the investment and the investor’s share of the
    net fair value of the associate’s identifiable assets, liabilities, and contingent liabilities is accounted for in
    accordance with PFRS 3 Business Combinations. Therefore:

    (a) Goodwill relating to an associate is included in the carrying amount of the investment. However, amortization of
    that goodwill is not permitted and is therefore not included in the determination of the investor’s share of the
    associate’s profits or losses.

    (b) Any excess of the investor’s share of the net fair value of the associate’s identifiable assets, liabilities and
    contingent liabilities over the cost of the investment

    ✓ Is included as income in the determination of the investor’s share of the associate’s profit or loss in the period in
    which the investment is acquired.

    ▪ Appropriate adjustments

    ● To the investor's share of the profits or losses after acquisition are made to account for additional
    depreciation of the associate's depreciable assets based on the excess of their fair values over their carrying
    amounts at the time the investment was acquired.

    ● This rule also applies to inventories since this will have an effect in the associate’s reported net income.

    ▪ Transactions with associates

    ✓ Unrealized profits and losses resulting from upstream (associate to investor) and downstream (investor to
    associate) transactions should be eliminated to the extent of the investor's interest in the associate if the asset sold
    between the associate and investor has not yet been sold to an unrelated party.

    ▪ Discontinuing the equity method

    Use of the equity method should cease from the date that significant influence ceases.

    ✓The difference between the selling price and the carrying amount of the investment sold shall be recognized in
    profit or loss. The “retained investment” shall be accounted for under PFRS 9 and shall be remeasured to fair value
    on the date significant influence ceases and recognized in profit or loss.
    ▪ Application of the equity method achieved in stages

     The previously held interest that was accounted for under the cost or fair value method shall be remeasured
    to fair value on the date the investor gains significant influence.
     The difference between the fair value and the carrying amount of the previously held investment shall be
    recognized in profit or loss.
     The total of the fair value of the previously held investment and the new acquisition cost shall be regarded
    as the total cost of the investment classified as “associate”.
     If the FVOCI was used to account for the previously held investment, any cumulative unrealized gain or
    loss as OCI shall be reclassified to retained earnings.

    ▪ Date of associate's financial statements

    ✓ The investor should use the associate's financial statements as of the same date as the financial statements of the
    investor unless it is impracticable to do so.

    ▪ Losses in excess of investment

     The investor’s share in the associate’s losses cannot exceed the “interest in the associate” and shall
    discontinue the application of the equity method if this is the case.
     After the investor's interest is reduced to zero, additional losses are recognized by a provision (liability)
    only to the extent that the investor has incurred legal or constructive obligations or made payments on
    behalf of the associate.

    - If the associate subsequently reports profits, the investor resumes recognizing its share of those
    profits only after its share of the profits equals the share of losses not recognized.

    You might also like