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IAS 28: Investments in Associates and Joint Ventures

Note: This snapshot applies to IAS 28 Investments in Associates & Joint Ventures (effective annual periods beginning on/after Jan 1/13), which supercedes IAS 28 Investment in Associates.

SCOPE
Applied by: ALL entities that are investors with joint
control of/significant influence over an investee.

EQUITY METHOD
Account for investments in associates/joint ventures
using equity method EXCEPT if one of the following (3)
exceptions apply:
(1) Exception in IFRS 10.4(a) applies (allows parent that
also has an investment in associate or associate to NOT
prepare consolidated F/S).
(2) ALL of following apply:
Investor is 100% subsidiary/partially-owned subsidiary of
another entity and its other owners, including those not
otherwise entitled to vote, have been informed about, & do
not object to, investor not applying equity method.
Investor's debt/equity instruments are not traded in public
market (domestic/foreign stock exchange/over-counter
market, including local & regional markets).
Investor did not file, nor is in process of filing, F/S with
securities commission/other regulatory organization, for
purpose of issuing any class of instruments in public market.
Ultimate/any intermediate parent of investor produces
consolidated F/S available to public that comply with IFRS.

SIGNIFICANT INFLUENCE
Significant influence = power to participate in financial & operating policy
decisions of investee but control/joint control over those policies.
Presumed significant influence if an investor holds, directly/indirectly
(e.g. through subsidiaries) >=20% of voting power of investee UNLESS
clearly demonstrable NOT. (< 20% presumed NOT significant influence,
UNLESS such influence clearly demonstrated.)
Substantial/majority ownership by another investor does NOT
necessarily preclude an investor from having significant influence.

Existence of significant influence is usually evidenced by one/more of


the following:
Representation on BoD/equivalent governing body of investee.
Participation in policy-making processes (including decisions about
dividends/other distributions).
Material transactions between investor & investee.
Interchange of managerial personnel.
Provision of essential technical information.

Consider if existence & effect of potential voting rights currently exercisable/convertible held by entity & other entities contribute to significant
influence consider all facts and circumstances EXCEPT managements intention & financial ability to exercise/convert.

EQUITY METHOD (continued)


(3) Investment in associate (or portion of investment in
associate)/joint venture held directly by/ indirectly through
venture capital organization/mutual fund/unit trust/similar
entity Investor may elect to measure such investments (or
portion of investment) @ FV through P/L per IAS 39/IFRS 9.

RECOGNIZING LOSSES

If investors % of loss >= interest in investee (i.e. carrying amount of


investment under equity method + long term interest that in substance,
form part of net investment ) Discontinue recognising further losses.
(Recognize a liability if investor incurred legal/constructive obligation to
(Portion of) investment classified as held for sale: Apply IFRS 5.
make payments on behalf of associate).
Any retained portion NOT held for sale Apply equity
If associate subsequently reports profits Resume recognizing investors
method until disposal of held for sale portion. After disposal
share of P/L only after its % of profits equals % of losses not recognized.
apply IAS 39/IFRS 9 or IAS 28 if still joint venture/ associate.
If no longer held for sale Equity account retrospectively
DISCONTINUE USE OF EQUITY METHOD
from date classified as held for sale & amend prior year F/S.
Discontinue equity method when no longer associate/joint venture.
If becomes subsidiary account for investment under IFRS 3 and IFRS 10.
EQUITY METHOD PROCEDURES
If retained interest = financial asset Measure @ FV. This FV = FV for
Initial Recognition
Carrying Amount
Adjustments
initial recognition as financial asset in IAS 39/IFRS 9.
Investment initially
Carrying amount / to recognise Adjustments are made to investors % of investees P/L
recognised @ cost.
investors % of investees P/L after
after acquisition to, e.g. account for depreciation on FV of FV of retained interest + proceeds from disposal - carrying amount of
investment at date equity method was discontinued recognize in P/L.
Goodwill that arose on
acquisition date. Investors % of P/L
assets on acquisition date, impairment losses recognized

Account for OCI in relation to investment as if investee directly disposed of


acquisition included in
of investee recognised in
by investee for goodwill or PPE. (adj. are similar to
assets/liabilities. E.g. gain/loss recognized in OCI related to available for
carrying amount of
investors P/L.
consolidation in IFRS 10)
sale investments is reclassified to P/L. (If ownership interest is reduced but
investment i.e. NOT
Distributions received from
Adjust for accounting policy differences between investee
investment remains associate/joint venture reclassify only % amount.)
recognized separately.
investee carrying amount of
& investor. Investors F/S prepared using uniform
Excess of investors share
investment.
accounting policies for like transactions & events in similar
of identifiable assets &
Adjustments to carrying amount
circumstances.
IMPAIRMENT LOSSES
liabilities over investment
may be necessary for in investors Adjust for dividends on cumulative pref. shares held by
cost (i.e. bargain purchase)
% interest in investee arising from
other parties & classified as equity even if not declared.
As goodwill is not recognized
After application of equity
included as income in
s in investees OCI. E.g.
Eliminate P/L from transactions between investor &
separately, it is not tested for
method, including recognising
determination of
revaluation of PPE, foreign
investee to extent of investors interest in investee.
impairment separately. Instead the
associates losses, investor
investors share of
exchange translation differences.
Use investees F/S on same date, UNLESS impractical. If
entire carrying amount is tested as
applies requirements of IAS 39
investee's P/L in period
Investors share of those s
impractical adjust for significant transactions. (<=3
a single asset. (See IAS 36).
to determine if necessary to
when acquired.
recognised in OCI of investor.
months difference & same from period to period.)
Full impairment loss can be
recognise additional impairment
reversed to extent that recoverable
loss with respect to investors
Investors % = present ownership interest & NOT possible exercise/conversion of potential voting rights UNLESS it gives current
amount of entire investment .
net investment.
access to returns.
This communication contains a general overview of IAS 28: Investments in Associates and Joint Ventures. This summary is not comprehensive and should be considered only in conjunction with review and consideration of the requirements of the relevant International
Financial Reporting Standards. This information is current as at November 2013 and should not be regarded as a substitute for professional advice. MNP LLP accepts no responsibility or liability for any loss or damage caused by your reliance on information contained in
this publication. Please contact your MNP representative for additional advice/guidance on a specific situation. MNP LLP 2013. All Rights Reserved.