MODULE 10

Group Accounting - II
 IAS 28- Associates
What you will
IFRS 11 – Joint arrangements
learn

IFRS 12 – Disclosure of interest in other entities

IAS 21 and IAS 29 – Foreign currency

 IAS 28
Investment in associates and Joint ventures
 IAS 28

The Standard defines an associate "as an entity over which the investor has significant influence".
• Power to participate in policy-making process
• Representation on the Board of directors
• Interchange of management personnel
• The investor owns 20% or more of the voting power
Measurement

• Equity Method
• Initially recorded at cost
• Subsequent – Investor share of post acquisition earnings (P/L) and OCI
• Annual test for impairment
• Unrealised profits should be eliminated
 Example 10.1

On 1 August 20X7, Huxley Co acquired a 30% interest in Sandos Co at a cost of $2.1million. The investment

gave Huxley Co significant influence over Sandos Co. In the year ended 31 December 20X7, Sandos Co

reported a profit after tax of $620,000, and at the end of the year it recognised a revaluation surplus in OCI

of $300,000 and a $120,000 loss on remeasurement of a debt investment measured at FVTOCI.

• Calculate share profit of associate?

• Share of other comprehensive income of associate that will not be reclassified to profit or loss?
• Share of other comprehensive income of associate that may be reclassified to profit or loss?
• Consolidated statement of financial position of the Huxley Co Group at 31 December 20X7 Investment in
associate?
 IFRS 11
Joint arrangements
 Joint arrangements

Joint control or
Joint operations
Joint ventures

Contractual
Agreement No separate entity
Unanimous consent
 Example 10.2

A Co holds 50% of Joven Co and B Co and C Co both hold 25%. An agreement between them specifies that

decisions about relevant activities require a majority of 75%.

 IFRS 12
Disclosure of interest in other entities
 IFRS 12

Apply on

• Subsidiaries
• Associates
• Joint arrangements
• Joint control or ventures
• Joint operators

Disclose information about

• Nature
• Risk
• Type of control
• Judgements for control
 IAS 21
Effect of changes in foreign exchange rate
 IAS 21

Foreign currency Foreign operations

Presentation
Functional currency
currency
 Example 10.3

Cantabria Co operates in Spain, paying its labour force and purchasing raw materials in Euro. It sells its goods

primarily to customers in the UK and sets selling prices in Pounds Sterling. The company has a US Dollar loan

which has funded the purchase of a new property.

 Foreign currency transactions

Initial Subsequent

Non
Monetary
monetary
items
items

Exchange date
at date of Retranslate at Fair value
transaction each reporting Cost model
model
date

Do Never
translates translates
 Foreign
operations

Income
Balance sheet
Statement

Assets,
Pre Acq. equity Income and
liabilities and
and reserves expenses
Good will

Spot rate or
Y/E Closing rate Acq. date rate -
average rate -
- OCI OCI
OCI
 Example
On 18 August 20X5 Europe Co, which has the Euro as functional currency, bought a property in India as a
base from which to expand its Asian operations. The property costs 220million rupees. Europe Co applies
the IAS 16 revaluation model to its property, however a valuation exercise at 31 December 20X5 reveals that
the fair value of the Indian property is not significantly different from carrying amount. 200 million rupees of
the purchase consideration was paid by Europe Co immediately on 18 August; the remaining amount was
payable on 31 October 20X5. Exchange rates at relevant dates were:

18 August 20X5 85 rupee : €1

31 October 20X5 87 rupee : €1
31 December 20X5 88 rupee: €1

• At what amount is the property initially recognised by Europe Co on 18 August 20X5?

• Should the property be retranslated at 31 December 20X5 using the closing rate?
• What exchange gain or loss arises on settlement of the amount payable to the property vendor?
 IAS 29
Financial reporting in hyper inflationary
economies
 IAS 29

Recognition

• Entity operates in hyper inflationary economy

• Cumulative inflation of 100% in last three years

Restatement

• Financial statements to current measuring units

• Current measuring units = General price index or CPI

Gain or loss?

• Reports separately in P/L

Korean war - 1953