PAS 28 INVESTMENTS IN ASSOCIATES AND JOINT

VENTURES

I. NATURE
PAS 28 prescribes the accounting for investments in associate and the application of
the equity method to investments in associates and joint ventures.
Investments in associates
Associates is “an entity over which the investor has significant influence.”
Existence of significant influence distinguishes an investment in associate from all other
types of investments.
Nature of
Applicable
Type of investment relationship with
reporting standard
investee
 Investment measured at fair
Regular investor PFRS 9
value
 Investment in associate Significant influence PAS 28
PFRS 3 and PFRS
 Investment in subsidiary Control
10
PFRS 11 and PAS
 Investment in joint venture Joint control
28

Significant influence is “the power to participate in the financial and operating policy
decisions of the investee but is not control or joint control of those policies.”
a. Representation on the board of directors/equivalent governing body of the
investee.
b. Participation in policy-making processes, including participation in the decisions
about dividends or other distributions.
c. Material transactions between the entity and its investee.
d. Interchange of managerial personnel
e. Provision of essential technical information.

I. RECOGNITION
Accounting for Investments in Associates:
Share in associate’s Effect on investment in Effect on investment
associate income
a. Profit or loss Increase for share in Increase for share in profit;
profit/decrease for share in decrease for share in loss
loss
b. Dividends Decrease No effect
c. Other Increase for share in No effect; the share in OCI
comprehensive gain/decrease for share in is included in the investor’s
income loss OCI

Investment in associate is an asset; it has a normal debit balance.

Share in profit (debit side) – increases in the carrying amount of the investment.
Dividends from investments accounted for using equity method are not income but
rather reductions from the carrying amount of the investment.
Investment in associates are presented as noncurrent assets.
II. MEASUREMENT

Under Equity Method, investment is initially recognizes at cost and subsequently

adjusted for the investor’s share in the investee’s change in equity (e.g. profit or loss,
dividends and other comprehensive income).
On acquisition, the difference between the cost of the investment and the entity’s share
in net fair value of the investee’s identifiable asset and liabilities is accounted for as
follows:
 If cost > fair value of the interest acquired, the excess is goodwill.
 If cost < fair value of the interest acquired, the deficiency is included as income
in determining the entity’s share in the investee’s profit/loss in the period of
acquisition.
Goodwill arises when a company acquires another entire business. The amount of
goodwill is the cost to purchase the business minus the fair market value of the tangible
assets, the intangible assets that can be identified, and the liabilities obtained in the
purchase.
Goodwill is recorded as an intangible asset on the acquiring company's balance sheet
under the long-term assets account. Goodwill is considered an intangible (or non-
current) asset because it is not a physical asset like buildings or equipment.
Interest in associate or joint venture:
a. Carrying amount of the investment in associate/joint venture.
b. Investment in preference shares of the associate/joint venture.
c. Unsecured, long-term receivables or loans.

III. PRESENTATION
Investment in Associates is presented in the Statement of Financial Position as non-
current assets.