Investment in Associates and Joint Ventures

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.)