FINANCIAL ACCOUNTING AND REPORTING

TOPIC 15: INVESTMENT IN ASSOCIATES

BASIC CONCEPTS

MEASUREMENT
INVESTMENT
IN INVESTEE WITH HEAVY LOSSES
ASSOCIATE
PAS 28 CHANGES IN % OWNERSHIP

INTERCOMPANY TRANSACTIONS

PRESENTATION AND REPORTING

BASIC CONCEPTS
- ASSOCIATE – an entity, such as partnership, over the investor has significant influence
- SIGNIFICANT INFLUENCE – power to participate in the financial and operating policy decision (investor – investee
relationship)
- CONTROL – power to govern in the financial and operating policies of an entity (parent subsidiary relationship)

SIGNIFICANT INFLUENCE ACQUIRED

- QUANTITATIVE THRESHOLD – atleast 20% or more voting power ; includes potential voting rights (OS) (totally silent)
o Warrants and options
o Convertible securities
- QUALITATIVE THRESHOLD – PaRe ProMI
o Participation in the policy making process
o Representation in the BOD
o Provision of technical information
o Material transactions
o Interchange of manegerail personnel

MEASUREMENT
INITIAL MEASUREMENT – at cost + transaction cost
𝐶𝑜𝑠𝑡 𝑜𝑟 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒 ≠ 𝑆ℎ𝑎𝑟𝑒 𝑖𝑛 𝐹𝑉𝑁𝐴 (𝐴𝑠𝑠𝑜𝑐𝑖𝑎𝑡𝑒)
𝐶𝑜𝑠𝑡 𝑜𝑟 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒 > 𝑆ℎ𝑎𝑟𝑒 𝑖𝑛 𝐹𝑉𝑁𝐴 − 𝐺𝑜𝑜𝑑𝑤𝑖𝑙𝑙
𝐶𝑜𝑠𝑡 𝑜𝑟 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒 < 𝑆ℎ𝑎𝑟𝑒 𝑖𝑛 𝐹𝑉𝑁𝐴 − 𝐺𝑎𝑖𝑛 𝑜𝑛 𝐵𝑎𝑟𝑔𝑎𝑖𝑛 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 (P/L – Investment Income)

SUBSEQUENT MEASUREMENT – cost ± adjustment for investor’s share in changes in equity of investee
SUBSEQUENT MEASUREMENT – equity method
INVESTMENT IN ASSOCIATE
Beginning Balance XX XX Dividends Receivable
Investment Income (P/L)* XX XX Share in OCL
Share in OCI XX XX Impairment Loss (PAS 36)
Ending Balance XX

*Share in P/L XX
± Amortization of FV Adjustment XX(XX)
± Intercompany Transaction XX(XX)
Dividends in Preference Shares (XX)
Gain on Bargain Purchase XX
Investmet Income XX

INVESTEE WITH HEAVY LOSSES

PAS 28

𝐼𝑛𝑣𝑒𝑠𝑡𝑜𝑟 ′ 𝑠 𝑆ℎ𝑎𝑟𝑒 𝑖𝑛 𝐿𝑜𝑠𝑠𝑒𝑠 > 𝐼𝑛𝑣𝑒𝑠𝑡𝑜𝑟 ′ 𝑠 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑖𝑛 𝑡ℎ𝑒 𝐴𝑠𝑠𝑜𝑐𝑖𝑎𝑡𝑒 − Stop Recognizing Futher Losses (Inv. in Assoc. −ZERO
INTEREST:
1. Investment in Associate
2. Investment in Preferred Shares (Associate)
3. Unsecured Long-term Receivables

1
 CHANGES IN PERCENTAGE OWNERSHIP
Initial Measurement
FV APPROACH COST OF ORIG. INV.
Step Acquistion FV Orig. Inv. + FV of New Investment
(PFRS APPROACH) + COST OF NEW INV.
PFRS 9  PAS 28 Without Catch-Up Adjustment (Prospectively)
COST APPROACH
(U.S. GAAP) With Catch-Up Adjustment (Retrospective)
ORIG. INV. (AS IF
ADJUSTMENT TO RETAINED EQUITY METHOD +
EARNINGS, BEGINNING COST OF NEW
INVESTMENT

Dilution – not resulting to loss significant influence (equity method)

Cessation – resulting to loss of significant influence (discontinued equity method) ; (PAS 29  PFRS 9)

DEEMED ACTUAL
SALE SALE

DILUTION
Net Selling Prince (𝑷𝒓𝒐𝒄𝒆𝒆𝒅𝒔 𝒇𝒓𝒐𝒎 𝒊𝒔𝒔𝒖𝒂𝒏𝒄𝒆 𝒙 % (𝒏𝒆𝒘) XX
% 𝑳𝒐𝒔𝒕
Carrying Amount (𝑪𝑨 𝒙 ) (XX)
𝑻𝒐𝒕𝒂𝒍 %
Gain/Loss on Dilution XX
𝑶𝑪𝑰 𝒙 % 𝒍𝒐𝒔𝒕
Portion of OCI/OCL Recycled P/L (𝑺𝒉𝒂𝒓𝒆 𝒊𝒏 ) XX (XX)
𝑶𝑪𝑳 𝑻𝒐𝒕𝒂𝒍
Total Gain or Loss on Dilution XX

CESSATION
(LOST) (RETAIN)
REALIZED UNREALIZED
Net Selling Price XX Fair Market Value XX
Carrying Amount XX Carrying Amount XX
Realized Gain/Loss XX Unrealized Gain/Loss XX
Recycled OCI/OCL XX (XX) Recycled OCI/OCL XX
Total Realized Gain/Loss XX Total Unrealized Gain/Loss XX

GAIN OR LOSS ON CESSATION

INTERCOMPANY TRANSACTIONS
Transactions in the form of sale of goods or services between the investor and the associate.

INVESTOR PART- OWNER

Share in P/L XX(XX)

UPSTREAM
Unrealized Profit (XX) (X %)
DOWNSTREAM UPSTREAM Realized Profit XX DOWNSTREAM
Investment Income XX

REALIZED PROFIT
ASSOCIATE - Sale to third parties
- Depreciable PPE thru depreciation

PRESENTATION AND REPORTING

INVESTMENT IN ASSOCIATES – NCA
EQUITY IN MOST RECENT FS (INVESTEE)
1. Difference in Reporting Period – not more than 3 months
2. Difference in Accounting Policy – the investee/associate should adjust