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Ias 28 Investment in Associate-2
Ias 28 Investment in Associate-2
Investment in Associate using the equity method requires an investor to account its
investments in associates. Associate is an entity which holds significant influence over the investment.
Significant influence is the power to participate in the financial and operating policy decisions of the
investee without overpowering the policies itself. The significance can be known if it ranges from 20% to
50% share holdings and it must be clearly stated in the investment. There are several factors needed to
provide that such influence exists, requisites are:
Participation in Policy making
Material transactions
Representation in the Board of Directors
Equity Method
On initial recognition, the investment in an associate is recognized at cost. The changes in
carrying amount are recognized in the investor’s share subsequently in profit or loss. Distribution
received from an investee reduces the carrying amount of the investment. Changes in the interest must
be adjusted through comprehensive income.
Accounting procedure for Investment in Associate
a) During the initial recognition, the investment is recognized at Cost.
Cash xxx
Investment in Associate xxx
Investment must be in ordinary shares because equity method is not applicable in preference
shares. Equity method is discontinued if the significant influence ceases to exist.