Financial Accounting II

Lecture 15
 Long Term Investments
Presentation and Disclosure
 Long Term Investments

• Long Term investments are

classified under following
categories.
Investment in Associated
Undertaking
Other Investments.
 Long Term Investments

• Investment in associated
undertaking can be an investment
in
Subsidiary Companies
Associated Companies
Interest in Joint Ventures
 Long Term Investments
• Measurement, Presentation and Disclosure
of Long Term Investments is governed by
following standards.
 IAS 27, Consolidated and Separate
Financial Statements
 IAS 28, Investments in Associates
 IAS 31, Interests in Joint Ventures
 IAS 32, Financial Instruments Disclosure
and Presentation
 IAS 39, Financial Instruments
Recognition and Measurement
 Investment in Subsidiaries IAS 27

• In the parent's / investor's

individual financial statements,
investments in subsidiaries,
associates, and jointly controlled
entities should be accounted for
either:
 Investment in Subsidiaries IAS 27

at cost; or
in accordance with IAS 39; or
using equity method in
accordance IAS 28
 Investment in Subsidiaries IAS 27

• Disclosures required in
consolidated financial statements:
the nature of the relationship
between the parent and a
subsidiary when the parent does
not own, directly or indirectly
through subsidiaries, more than
half of the voting power;
 Investment in Subsidiaries IAS 27

the reasons why the ownership,

directly or indirectly through
subsidiaries, of more than half of
the voting or potential voting
power of an investee does not
constitute control;
Direct or Indirect Subsidiary
Direct Direct
Subsidiary Subsidiary
60% 50%
A B C

Indirect Subsidiary
 Investment in Subsidiaries IAS 27

The reporting date of the financial

statements of a subsidiary when
such financial statements are used
to prepare consolidated financial
statements and are as of a
reporting date or for a period that is
different from that of the parent,
and the reason for using a different
reporting date or period; and
 Investment in Subsidiaries IAS 27

The nature and extent of any

significant restrictions on the
ability of subsidiaries to transfer
funds to the parent in the form
of cash dividends or to repay
loans or advances.
 Investment in Associate IAS 28
• In its consolidated financial statements, an investor
should use the equity method of accounting for
investments in associates, other than in the following
exceptional circumstances:

 An investment in an associate that is acquired

and held exclusively with a view to its disposal
within 12 months from acquisition should be
accounted for as held for trading under IAS 39.
Under IAS 39, those investments are measured
at fair value with fair value changes recognised in
profit and loss.
 Investment in Associate IAS 28
• An investor need not use the equity method if
all of the following conditions are met
1. The investor is itself a wholly-owned
subsidiary, or is a partially-owned
subsidiary of another entity and its other
owners, including those not otherwise
entitled to vote, have been informed
about, and do not object to, the investor
not applying the equity method;
2. The investor's debt or equity instruments
are not traded in a public market;
 Investment in Associate IAS 28
• Following disclosures are required:
IAS 28
fair value of investments in
associates for which there are
published price quotations;
summarised financial information of
associates, including the
aggregated amounts of assets,
liabilities, revenues, and profit and
loss;
 Investment in Associate IAS 28
explanations when investments of
less than 20% are accounted for by
the equity method or when
investments of more than 20% are
not accounted for by the equity
method;
use of a reporting date of the
financial statements of an
associate that is different from that
of the investor;
 Investment in Associate IAS 28
nature and extent of any significant
restrictions on the ability of
associates to transfer funds to the
investor in the form of cash
dividends, or repayment of loans or
advances;
unrecognised share of losses of an
associate, both for the period and
cumulatively, if an investor has
discontinued recognition of its
share of losses of an associate;
 Investment in Associate IAS 28
explanation of any associate is not
accounted for using the equity
method; and
summarised financial information of
associates, either individually or in
groups, that are not accounted for
using the equity method, including
the amounts of total assets, total
liabilities, revenues, and profit and
loss.
 Investment in Joint Ventures

• As per IAS 31, there are two

treatments of accounting for an
investment in jointly controlled
entities
Proportionate consolidation.
Equity method of accounting.
 Investment in Joint Ventures
• Proportionate consolidation.
– Under proportionate consolidation, the
balance sheet of the venturer includes
its share of the assets that it controls
jointly and its share of the liabilities for
which it is jointly responsible. The
income statement of the venturer
includes its share of the income and
expenses of the jointly controlled entity.
IAS 31. Equity method of accounting.
 Investment in Joint Ventures IAS 31
• Equity Method
– Procedures for applying the equity
method are the same as those
described in IAS 28, Investment in
Associates.
 Investment in Joint Ventures IAS 31
• A venturer is required to disclose:
– Information about contingent
liabilities relating to its interest in
a joint venture.

– Information about commitments

relating to its interests in joint
ventures.
Investment in Joint Ventures IAS 31
– A listing and description of
interests in significant joint
ventures and the proportion of
ownership interest held in jointly
controlled entities.

– The method it uses to recognise

its interests in jointly controlled
entities.
 Long Term Investments

• Other Long Term Investments are

classified as ( IAS 32 and 39)
Held to maturity investments
Available for sale investments