IAS 28-Investments in Associates and Joint Ventures
Summary of IAS 28-Investments in Associates and Joint Ventures
IAS 28 requires an investor to account for its investment in associates using the equity method.
IFRS 11( Joint Arrangements) requires an investor to account for its investments in joint ventures using the equity method (with some limited exceptions).
IAS 28 prescribes how to apply the equity method when accounting for investments in associates and joint ventures.
An associate is an entity over which the investor has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee without the power to control or jointly control those policies.
If an entity holds, directly or indirectly (eg through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the entity has significant influence. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
Equity method
Associates and joint ventures are to be included in consolidation financial statements using the equity method.
Under the equity method, on initial recognition the investment in an associate or a joint venture is recognised at cost. The carrying amount is then increased or decreased to recognise the investorβs share of the subsequent profit or loss of the investee and to include that share of the investeeβs profit or loss in the investorβs profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the investorβs proportionate interest in the investee and for the investeeβs other comprehensive income.
In the statement of profit or loss and other comprehensive income, share of profit after tax and share of other comprehensive income of an associate or joint venture are recognized.
Unrealized profits and losses should be eliminated to the extent of the investorβs interest in the associate.
Donβt eliminate mutual balances (receivables or payables) outstanding at the end of the reporting period.
Source:
– ifrs . org
– Phnom Penh HR