IAS 28 Investments in Associates and Joint Ventures Last updated: March 2017

SCOPE SIGNIFICANT INFLUENCE

Applied by: ALL Significant influence = power to participate in financial & operating policy decisions of Existence of significant influence is usually evidenced by one/more of the following:
entities that are investee but ≠ control/joint control over those policies.  Representation on board of directors/equivalent governing body of investee.
investors with joint  Presumed significant influence if an investor holds, directly/indirectly (e.g. through  Participation in policy-making processes (including decisions about dividends/other
control of/ subsidiaries) >=20% of voting power of investee UNLESS clearly demonstrable NOT. (< distributions).
significant influence 20% presumed NOT significant influence, UNLESS such influence clearly demonstrated.)  Material transactions between investor & investee.
over an investee.  Substantial/majority ownership by another investor does NOT necessarily preclude an  Interchange of managerial personnel.
investor from having significant influence.  Provision of essential technical information.
Consider if existence & effect of potential voting rights currently exercisable/convertible held by entity & other entities contribute to significant influence – consider all facts and
circumstances EXCEPT management’s intention & financial ability to exercise/convert.

Account for investments in associates/joint ventures using equity method EXCEPT if one of three exceptions apply:
(1) Exception in IFRS
10.4(a) applies (allows
parent that also has an
investment in associate or
associate to NOT prepare
consolidated F/S).
EQUITY METHOD
(2) ALL of following apply: (3) Investment in associate (or portion of
 Investor is 100% subsidiary/partially-owned subsidiary of another entity and its other owners, including those not otherwise investment in associate)/joint venture held
entitled to vote, have been informed about, & do not object to, investor not applying equity method. directly by/ indirectly through venture
 Investor's debt/equity instruments are not traded in public market (domestic/foreign stock exchange/over-counter market, capital organization/mutual fund/unit
including local & regional markets). trust/similar entity→ Investor may elect to
 Investor did not file, nor is in process of filing, F/S with securities commission/other regulatory organization, for purpose of measure such investments (or portion of
issuing any class of instruments in public market. investment) @ FV through P/L per IAS 39/
 Ultimate/any intermediate parent of investor produces F/S available to public that comply with IFRS, consolidating investor or IFRS 9.
measuring it at FV through P/L.

EQUITY METHOD PROCEDURES

Initial recognition:
 Investment initially recognized
@ cost.
 Goodwill that arose on
acquisition → included in
carrying amount of
investment (i.e., NOT
recognized separately).
 Excess of investor’s share of
identifiable assets & liabilities
over investment cost (i.e.,
bargain purchase) → included
as income in determination of
investor’s share of investee's
P/L in period when acquired.
Carrying amount:
 Carrying amount ↑/↓ to recognize
investor’s % of investee’s P/L after
acquisition date. Investor’s % of P/L of
investee → recognized in investor’s
P/L.
 Distributions received from investee
↓ carrying amount of investment.
 Adjustments to carrying amount may
be necessary for Δ in investor’s %
interest in investee arising from Δs in
investee’s OCI (e.g. revaluation of PPE,
foreign exchange translation
differences, etc.).
 Investor’s share of those Δs
recognized in OCI of investor.
Adjustments:
 Adjustments are made to investor’s % of investee’s P/L after acquisition (e.g.  If investors % of loss >= interest in investee
account for depreciation on FV of assets on acquisition date, impairment
losses recognized by investee for goodwill or PPE, etc.) similar to the
consolidation procedures in IFRS 10.
 Adjust for accounting policy differences between investee & investor.
Investor’s F/S prepared using uniform accounting policies for like
transactions & events in similar circumstances (interest in investment entity
FV measurement exception (IFRS 10.36A)).
 Adjust for dividends on cumulative pref. shares held by other parties &
classified as equity even if not declared.
 Eliminate P/L from transactions between investor & investee to extent of
investor’s interest in investee.
 Use investee’s F/S on same date, UNLESS impractical. If impractical → adjust
for significant transactions. (<=3 months difference & same from period to
period.)
Share of investee’s losses:
(i.e., carrying amount of investment under
equity method + long term interest that in
substance, form part of net investment) →
discontinue recognizing further losses.
 Recognize a liability if investor incurred
legal/constructive obligation to make
payments on behalf of associate.
 If associate subsequently reports profits →
resume recognizing investor’s share of P/L
only after its % of profits equals % of losses
not recognized.

This communication contains a general overview of the topic and is current as of March 31, 2017. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case.
Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified
professional, who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no
responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2017. All rights reserved.
 IAS 28 Investments in Associates and Joint Ventures Last updated: March 2017

EQUITY METHOD (cont’d)

DISCONTINUING USE OF EQUITY METHOD
 Discontinue equity method when no longer associate/joint venture.
 If becomes subsidiary → account for investment under IFRS 3 and IFRS 10.
 If retained interest = financial asset → measure @ FV. This FV = FV for initial
recognition as a financial asset in IAS 39/IFRS 9.
 FV of retained interest + proceeds from disposal - carrying amount of
investment at date equity method was discontinued → recognize in P/L.
 Account for OCI in relation to investment as if investee directly disposed of
assets/liabilities (i.e., gain/loss recognized in OCI related to available for sale
investments is reclassified to P/L).
 If ownership interest is reduced but investment remains associate/joint
venture – reclassify only % amount.
IMPAIRMENT LOSSES
 As goodwill is not recognized separately, it is not tested for
impairment separately. Instead the entire carrying amount is tested
as a single asset (see IAS 36).
 Full impairment loss can be reversed to extent that recoverable
amount of entire investment ↑.
 After application of equity method, including recognizing
associate’s losses, investor applies requirements of IAS 39 to
determine if necessary to recognize additional impairment loss with
respect to investor’s net investment.
HELD FOR SALE
IFRS 5 applies if an investment, or a portion
thereof, meets criteria to be classified as held for
sale.
 Any retained portion NOT held for sale → apply
equity method until disposal of held for sale
portion.
 After disposal → apply IAS 39/IFRS 9 or IAS 28
if still joint venture/ associate.
 If no longer held for sale → equity account
retrospectively from date classified as held for
sale & amend prior year F/S.

This communication contains a general overview of the topic and is current as of March 31, 2017. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case.
Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified
professional, who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no
responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2017. All rights reserved.