Chapter 14

Investments in Associate - An investment made in another entity where the investor has significant influence but not control.

Associate - A company in which an investor has significant influence, typically through ownership of 20% to 50% of voting rights.

Significant Influence (Accounting) - The power to participate in financial and operating policy decisions of an investee but not control or jointly control those policies.

Investment in Joint Venture - An investment where two or more parties share control and have joint decision-making authority.

Investment measured at fair value - A method where investments are recorded at their market price rather than cost.

Investment in subsidiary - An investment where the investor has control, typically owning more than 50% of the voting rights.

Voting rights - The rights of shareholders to vote on corporate policies and decisions.

Ordinary shares - Common stock that entitles the holder to voting rights and dividends.

Preference shares - Shares that provide fixed dividends and have priority over ordinary shares in asset distribution.

PAS 28 - The Philippine Accounting Standard that outlines accounting for investments in associates and joint ventures.

Illustration: Determining the ownership interest - A scenario demonstrating how to calculate the ownership percentage in an associate or joint venture.

Equity Method - An accounting method where the investor recognizes its share of the associate’s profits and losses.

Share in the Investee’s changes in Equity - The investor's proportional recognition of changes in the equity of the associate, including other comprehensive income.

Illustration: Equity Method - A practical example of applying the equity method in accounting for associates.

Investment in Associate - The amount recorded as an investment in an associate using the equity method.

Cash - Liquid assets, including bank deposits, used in transactions.

Share in Profit of Associate - The investor’s proportionate share of the associate’s net income.

Share in Loss of Associate - The investor’s proportionate share of the associate’s net loss.

Share in OCI of associate - revaluation surplus - The investor’s share in the associate’s other comprehensive income related to asset revaluation.

Share in OCI of associate - translation of foreign operation - The investor’s share in foreign currency translation adjustments of the associate.

Application of the Equity Method - The process of applying the equity method to account for an investment in an associate.

Goodwill - The excess of purchase price over the fair value of the net assets acquired in an investment.

Investment income - Income derived from investments, including dividends and share in profits.

Investment account - The ledger account used to track the value of investments.

Illustration: Purchase cost exceeds fair value of interest acquired - A scenario explaining the accounting treatment when the purchase price exceeds the fair value of acquired interest.

Fair value of net assets acquired - The market value of an investee’s identifiable net assets at the acquisition date.

Book Value - The recorded value of an asset in financial statements.

Overvaluation of inventory - When inventory is recorded at a value higher than its fair market price.

Undervaluation of depreciable asset - When a depreciable asset is recorded at a value lower than its fair market price.

Fair value of net assets - The estimated value of an entity’s assets minus liabilities at market conditions.

PFRS 5 - The Philippine Financial Reporting Standard related to non-current assets held for sale and discontinued operations.

Election - A choice made by an entity regarding accounting treatments under applicable standards.

Potential voting rights - Rights that may be exercised in the future, such as share warrants or options, affecting control and influence.

Present ownership interest - The current equity ownership in an entity, excluding potential voting rights.

Share warrants - Financial instruments granting the holder the right to purchase shares at a fixed price.

Share call options - Contracts that give the buyer the right to purchase shares at a predetermined price before expiration.

Debt or equity instruments - Financial securities representing either a debt obligation or ownership interest.

Illustration: Potential voting shares - A scenario explaining the impact of potential voting rights on ownership calculations.

Cumulative preference shares - Preference shares where unpaid dividends accumulate and must be paid before ordinary shareholders receive dividends.

Noncumulative preference shares - Preference shares where unpaid dividends do not accumulate.

Redeemable preference shares - Preference shares that can be bought back by the issuing company at a predetermined price.

Illustration: Cumulative Preference Shares - A scenario showing how cumulative preference shares function in financial reporting.

Retained earnings - Accumulated net income that has not been distributed as dividends.

PFRS 3 - The Philippine Financial Reporting Standard for business combinations.

PFRS 10 - The Philippine Financial Reporting Standard for consolidated financial statements.

PFRS 9 - The Philippine Financial Reporting Standard for financial instruments.

Prospectively - Applying accounting changes only to future transactions and events.

Gain on sale of investment - The profit earned when an investment is sold for more than its carrying amount.

Held for trading securities - Investments intended for short-term profit through frequent buying and selling.

Gain on reclassification - The profit recognized when an investment is reclassified from one accounting category to another.

Dividend receivable - The amount of declared dividends not yet received.

Dividend Income - Earnings received from share ownership in another company.

Unrealized gain - P/L - The increase in fair value of an investment that has not been sold, recognized in profit or loss.

Reclassification of cumulative other comprehensive income - Transferring accumulated OCI balances to retained earnings or profit and loss.

Loss on sale of investment - The loss incurred when an investment is sold for less than its carrying amount.

Translation of foreign operation - The process of converting a foreign subsidiary’s financial statements into the parent company’s reporting currency.

Gain on reclassification - P/L - Profit recognized from the reclassification of financial instruments, reported in profit and loss.

Revaluation surplus - associate - The increase in value of an associate’s assets recognized in OCI.

Retained earnings - The cumulative net income retained by a company instead of being distributed as dividends.

Severe long-term restrictions - Limitations placed on an investment that significantly impact its value or liquidity.

Change to equity method - gain of significant influence - The process of switching to the equity method after obtaining significant influence over an investee.

PAS 28 - Philippine Accounting Standard governing investments in associates and joint ventures.

PFRS 3 - Philippine Financial Reporting Standard for business combinations.

PFRS 3.42 - A specific section of PFRS 3 addressing the allocation of purchase consideration.

Unrealized Loss - OCI - A decrease in fair value of an investment recognized in other comprehensive income.

Investment in FVOCI securities - Investments measured at fair value through other comprehensive income.

Loss on remeasurement - P/L - A decrease in the fair value of an investment recognized in profit or loss.

Investment in equity securities - Cost - An investment in equity instruments recorded at acquisition cost.

Intercompany transactions with an associate - Transactions between a parent company and its associate that require special accounting treatment.

Downstream - Transactions from the investor to the associate.

Upstream - Transactions from the associate to the investor.

Deferred gain - A gain from an intercompany transaction that is not immediately recognized.

Investment in preference shares - The purchase of preference shares in another entity.

Advances to associate - Loans or funding provided by an investor to its associate.

Loss on associate - Losses recognized from an investment in an associate.

Liability incurred on behalf of associate - Obligations assumed by an investor on behalf of its associate.

Impairment losses - The reduction in value of an asset when its recoverable amount falls below its carrying value.

PAS 36 - The Philippine Accounting Standard for impairment of assets.

Recoverable amount - The higher of an asset’s fair value less costs to sell or its value in use.

Fair value - The price at which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.

Costs of disposal - Expenses incurred in selling an asset.

Value in use - The present value of expected future cash flows from an asset.