IAS 28 - Investments in Associates and Joint Ventures

Vocabulary flashcards covering the key concepts, definitions, and mechanisms of IAS 28 Investments in Associates and Joint Ventures as presented in the lecture notes.

Associates

Investments where the investor has significant influence over the investee, typically evidenced by one or more indicators (e.g., board representation, decision-making participation, material transactions, exchange of management, or provision of essential technical information).

Joint ventures

Joint arrangement where the investor has joint control and does not have direct rights to the investee's assets or obligations for its liabilities.

Significant influence

Power to participate in financial and operating policy decisions of the investee; usually indicated by board representation, participation in decisions (e.g., dividends), material transactions, management exchange, or essential technical information.

20% voting rights presumption

If an investor holds 20% or more of the investee's votes, it is presumed to have significant influence unless demonstrated otherwise.

Equity method

Accounting method for investments in associates and joint ventures where the investment is initially recognized at cost and subsequently adjusted for the investor's share of the investee's net assets, profits/losses, and OCI; dividends reduce the carrying amount.

Initial recognition at cost

Under the equity method, the investment is recorded as a single line item at acquisition cost, including transaction costs; cost is generally the fair value of consideration paid.

Carrying amount

The investment's carrying amount is updated to reflect the investor's share of the investee's profit or loss, OCI, and distributions, and is tested for impairment.

Share of profit or loss and OCI

The investor recognizes its share of the investee's profit or loss and OCI in its own accounts after acquisition.

Dividends reduce carrying amount

Dividends received from an associate reduce the carrying amount of the investment.

Step 2 – fair value adjustments

Profit or loss of the investee is adjusted for the effect of fair value adjustments recognized at initial recognition.

Step 3 – effects of transactions with investee

Profit or loss of the investee is adjusted for the effects of transactions with the investee (eliminating intercompany profits).

Step 4 – P/L and OCI recognition

Carrying amount is adjusted to recognize the investor’s share of the investee's profit/loss and OCI after acquisition.

Step 5 – distributions

Carrying amount is adjusted to recognize distributions (dividends) received from the investee; ledgers reduce carrying amount and profits are recognized only after offsets.

Step 6 – impairment

Assess and recognize impairment if any; impairment testing is governed by IAS 36 and impairment can be reversed under the equity method.

Impairment triggers under IAS 28

Impairment triggers are considered; impairment is tested as a single asset; no separate allocation of impairment loss to the investor's share; subsequent cash flows of the investee are considered.

Upstream transactions elimination

Eliminate the investor’s share of profit from upstream sales (investee buys from investor) to prevent unrealized profit in consolidated statements; adjust carrying amount accordingly.

Downstream transactions elimination

Eliminate unrealized profit on downstream sales to a joint venture (e.g., inventory sold to JV); adjustments affect revenue, cost of sales, and investment, and are reversed when the JV sells to third parties.