Professional Documents
Culture Documents
Chapter 32
Accounting for equity
investments, including
investments in associates
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Objectives (cont.)
Be aware of tests that can be applied to determine the
existence of significant influence
Be aware of the disclosure requirements of
AASB 128 Disclosure of Interests in Other entities
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Marketable securities:
are debentures, shares, options or bonds that are
readily sold at reasonably short notice
Copyright 2012 McGraw-Hill Australia Pty Ltd
PPTs to accompany Deegan, Australian Financial Accounting 7e
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Equity investments
Usually shares in an organisation
Give investor an ownership interest and therefore share in
profits
Cash investments
Can be converted to cash at short notice
For example, interest-bearing deposits
Property investments
Various investments in physical property
For example, land and buildings
Held to earn rentals and/or capital appreciation
Can be purchased directly or through a property trust
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Dr
Cr
Investment in XYZ
Gain on equity investments
15 000
15 000
Dr
Cr
Investment in XYZ
Investment revaluation reserve
15 000
15 000
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Investments in associates
Key terms:
Associate: investee over which the investor has
significant influence
Investee: entity in which another entity has an
ownership interest
Investor: entity/person that has an ownership interest
in another entity
Significant influence: power to participate in
investees financial and operating policy decisions
(but not control or joint control)
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Significant influence
Used in determining whether the equity method is to be
applied
Falls short of control
Normally stems from investors voting power in the
investee
Assumed to exist where investor holds 20% or more of
investees voting power
Copyright 2012 McGraw-Hill Australia Pty Ltd
PPTs to accompany Deegan, Australian Financial Accounting 7e
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12 000
12 000
12 000
12 000
6 000
6 000
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30 000
12 000
18 000
18 000
15 000
15 000
6 000
6 000
84 000
84 000
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540 000
540 000
30 000
30 000
12 000
12 000
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12 000
12 000
15 000
15 000
Dr Dividend receivable
Cr Investment in Joy Ltd
6 000
84 000
6 000
84 000
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Summary
The lecture considers issues relating to the valuation and
disclosure of equity investments
If investor has significant influence over investee (i.e. an
associate), equity accounting must be used to account for
investors interest in associate
Equity accounting will be undertaken in the consolidated
accounts if the investor has subsidiaries
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