INVESTMENT IN ASSOCIATES AND JOINT VENTURES

Associate- is an entity over which the inventor has significant influence, which may include
unincorporated identity such as partnership or joint venture.
Joint Venture- is an arrangement whereby the parties, who have joint control of the
arrangement , have rights to the net assets of the arrangement.

Significant Influence
•the power to participate in the financial and operating policy decisions of the investee but is not
control or joint control of these policies.
•IAS 28 concludes that an investee who holds directly or indirectly 20% or more of the voting
power of the investee, it is presumed that the investor has significant influence. Conversely, if
the investor holds such power, he is presumed to not have significant influence.

The investment in associate or joint venture that is not held exclusively for disposal within 12
months from acquisition date of the consolidated financial statements of the investor and its
financial statements with no subsidiaries shall be accounted for using the equity method unless:
(a) the investor is a subsidiary of another entity,
(b) the investor’s debt or equity instruments are not traded in a public capital market,
(c) the entity did not file, nor is it in the process of filing its financial statements with a securities
commission or other regulatory organizations for the purpose of issuing any class of instruments
in a public market,
(d) the ultimate parent or any immediate parent of the entity produces consolidated financial
statements for public use that comply with IFRS.
In this case, the investor shall account for the investment at fair value and shall apply IFRS 9.

Equity Method
 The investment in associate or joint venture is initially recognized at purchase price plus
transaction costs.

Investment in Associate/Joint Venture xx

Cash xx

 The carrying amount is increased or decreased to recognize the investors share of the
profit or loss of the investee after the date of acquisition which is recognized in the
investor’s profit or loss (in the statement of comprehensive income).
 Investment in Associate/Joint Venture xx
Share in Profit of Associate/
Joint Venture xx
Share in profits of the associate
(or joint venture)
#
 An increase in the fair value of the investee’s net assets over the carrying amount
indicates an amortization of the excess amount as an adjustment to the investment
account and to the share in profit of the associate. To amortize, the entry is:

Share in Profit of Associate/Joint Venture xx

Investment in Associate/Joint
Venture xx
Adjustment to share in profit of associate
(or joint venture) due to excess of fair value
of nonmonetary assets
#
 Goodwill- any further excess of the cost of the investment and the investor’s share of the
fair values in net identifiable assets of the associate is attributable to goodwill, which is
carried in the investment balance and is not separately recognized.
- Is not applicable for adjustment because it is not subject to amortization.
- is tested for impairment, at least annually. Therefore, the investor shall take up its
proportionate share in impairment loss as:

Share in Profit of Associate/Joint Venture xx

Investment in Associate/Joint
Venture xx
Share in impairment loss
of goodwill
#
 If cost of investment is lower- If cost of investment is less than the equity in the fair
value of the net identifiable assets of the associate or joint venture, the investor shall take
up the difference as an adjustment in its share of profit of the associate or joint venture in
the period of acquisition.

Investment in Associate (Joint Venture) xx

Share in Profit of Associate (Joint Venture) xx
#
 Distributions (dividends) received or receivable from an investee reduce the carrying
amount of the investment.

Cash or Dividends Receivable xx

 Investment in Associate (Joint Venture) xx

 Changes in the investees shareholder’s equity that have not been recognized in the
investee’s profit or loss are considered as adjustments to the carrying amount of the
investment. These are recognized in other comprehensive income section of the
statement of comprehensive income

Investment in Associate (Joint Venture) xx

Other Comprehensive Income (Share in
Revaluation Increase of Associate/Joint
Venture) xx
Share in the associate’s recognized
Other comprehensive income
#

 Land is not applicable for adjustment because it is not subject to depreciation or

amortization.

Presentation:
 Investment accounted for under the equity method require separate line presentation.
 Share of profit or loss from investments accounted for under the equity method shall be
presented separately in the profit or loss section of the statement of comprehensive
income.

Other Issues Affecting the Investment in Associate

 Difference in Reporting Dates- Generally, the investor shall use the most recent
financial statement of the associate or joint venture for equity method. In this case
where the reporting dates of the investor and associate are different, the associate
prepares financial statements similar with the date used by the investor. When
contrasting dates are used, adjustments shall be made for the effects of significant
transactions or events that occur between that date and the date of the investor’s
financial statement.

 Difference in Accounting Policies- the investor’s financial statements shall be

prepared using uniform accounting policies for like transactions and events in similar
circumstances, indicating that the investor will make adjustments for any effects of
transactions accounted for by the associate.
  Associate has Preference Shares- When the associate has outstanding preference
share, the measurement shall be based on the investee’s profit after making
adjustments for the dividends on preference shares. If it is cumulative preference
share, the profit shall be adjusted by deducting required current preference dividends,
whether or not declared. If the investee has outstanding non-cumulative preference
share, the investee’s profit shall be reduced by the amount of preference dividends
declared during the period.

- when total amount of dividends include dividends on prior year preference shares,
only the current annual dividends will be deducted from the associate’s profit to
get the profit attributable to ordinary shareholders.
- when no dividends are declared, no deductions shall be made.

 Associate Continuously Reports Losses- An investor will no longer share in the loss of
the associate if its cumulative losses equals or exceeds its interests, where the carrying
value is reduced to zero. On the other hand, the investor is to take its share of profit when
it is already equal to the investor’s unrecognized share in losses of the associate.

Disposal of Investment in Associate

 Gain or Loss- when the investor disposes some or all of its shares held, gain or loss is:
Net Disposal Proceeds – Carrying Value of the investment

- If Net Proceeds exceed the carrying value, the entry is:

Cash xx
Investment in Associate xx
Gain on Sale of Investment xx

Reclassification of Equity Securities

 To investment at fair value: when an investor loses its significant influence ove rthe
investee company, the investor shall discontinue the use of equity method and shall
reclassify the investment at fair value. The securities shall be transferred at faur value at
the date of reclassification and gain or loss is recognized through the difference betweent
the fair value of the retained investment and its previous carrying value.
If fair value exceeds carrying value, the entry is:
Equity Investments (at Fair Value) xx
Investment in Associate xx
Gain from Investment xx

 At fair value to investment: An investment originally classified as equity investment at

fair value may give the investor significant influence. The securities shall be reclassified
 as investment in associate if the investor does not have intention of disposing the shares
within 12 months from date significant influence is acquired. The fair value shall be
updated in the accounting records and be considered as the initial cost transferred to
investment in Associate or Joint Venture at the date of reclassifications (first day of the
first reporting period following the change in business model).

Investment in Associate (or Joint Venture) xx

Equity Investments at FV through
OCI/Profit or Loss xx

Disclosure:
 Carrying amounts of each financial asset disclosed separately
 Carrying amount of financial assets pledged as collateral for liabilities or contingent
liabilities and any significant terms and conditions attached.
 The amount of the reclassified financial asset and the reason (if any)
 Material items of income, expense, and gains and losses resulting from financial assets
including at least the amount of any gain or loss recognized in OCI during the period and
net gains and losses at fair value through profit or loss. Separate disclosures should be
shown for financial instruments at FVPL and those classified as held for sale.
 The accounting policies and methods adopted, criteria for recognition, and basis for
measurement.
 Whether fair values of financial assets are determined directly or in full part, by reference
to price quotations in an active market or a reference estimated using a valuation
technique.
For each joint venture and associate material to the entity:
 Name of the joint arrangement or associate and the nature of the relationship
 Principal place of business and country of incorporation
 Proportion of ownership interest or participating share and the proportion of voting rights
held, if different
 Measurement of the investment
 Summarized financial information about the joint venture or associate including, but not
limited to current and noncurrent assets, current and noncurrent liabilities, revenue, profit
or loss from continuing operations, post-tax profit or loss from discontinued operations,
LCI and total comprehensive income.