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Investment in Equity Securities measured at Fair Value
Less than 20%: It is presumed that the investor does not have significant influence over the investee company
Investment in Associates or Joint venture using the Equity Method
20% - 50%: It is presumed that the investor has significant influence over the investee company
Associate
An entity over which the investor has significant influence
Joint Venture
An arrangement whereby the parties that gave joint control of the arrangements have rights to the net assets of the arrangements
Significant influence
the power to participate in the investee’s financial and operating policy decisions but not control or joint control of those policies
Use of equity method
shall be applied in consolidated FS of the investor and the investor with no subsidiaries if the investment (in associate or joint venture) is not held exclusively for disposal within 12 months from acquisition date
Equity Method
Initial Recognition: Purchase price + Transaction Costs
Equity Method
Share in investee’s profit or loss: In profit or loss or other comprehensive income, as applicable
Dividend Distribution
In equity method, reduction to the investment account is done
Changes in Cumulative OCI
In equity method, adjustment to the investment account is done
Change in Cumulative OCI
Examples:
Change in revaluation surplus
Foreign exchange translation differences
Changes in fair value of financial assets through OCI
Profit or Loss
Effect on Investment in Associate:
Increase for share in profit
Decrease for share in loss
Effect on Investment Income:
Increase for share in profit
Decrease for share in loss
Dividends
Effect on Investment in Associate: Decrease
Effect on Investment Income: No effect
Other Comprehensive Income
Effect on Investment in Associate:
Increase for share in gain
Decrease for share in loss
Effect on Investment Income:
No effect
The share in OCI is included in the investor’s OCI
Non-current assets section
Investment in Associate is an asset presented under
Interest in the associate or joint venture
includes the following:
Carrying amount of the investment in associate/joint venture
Investment in preference shares of the associate/joint venture
Unsecured, long term receivables or loans. (Trade receivables and payables and secured long-term receivables or loans are not included)
Share in losses
are applied in the following order:
Carrying amount of the investment in associate/joint venture;
Other components of the interest in the associate or joint venture in the reverse order of their seniority (ie. reverse order of priority in liquidation.)
