Brown Monochrome Simple Minimalist Research Project Final Defense Presentation Template

PAS 28
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
CINCO, FRANZE LEI KAIZEM B.

OSAL, ANJAROSE C.
Group 11-BS ACCOUNTANCY 1B
INTRODUCTION
PAS 28 prescribes the accounting for investments in

associates and the application of the equity method to the
investments in associates and joint ventures.
Investors apply PAS 28 when they have the significant
influe or joint control over an investee.
Investee in Associate
An associate is “an entity over which the investor has
significant influence.” (PAS 28.3)
The existence of significant influence distinguishes an

investment in associate from all other types of
investments.
Significant influence is "the power to participate in the financial and operating policy
decisions of the ivestee but is not control or joint control of those policies." (PAS 28.3)
Significant influence is presumed to exist if the investor holds, directly or indirectly (e.g.
through subsidiaries), 20% or more of the voting power of the investee. Conversely,
significant influence is presumed not to exist if the voting power is less than 20%.
However, these are only presumptions, meaning they are generally held to be true in
the absence of evidence to the contrary. Thus, an investor may have significant influence
even if it has less than 20% voting power, and conversely, may not have significant influence
even if it has more than 20% voting power, if these can be clearly demonstrated.
When determining the existence of significant influence, an entity considers the effect of
potential voting rights that are currently exercisable.
Any of the following may provide evidence of the existence of significant influence:
a. representation on the board of directors or equivalent governing body of the investee;
b. participation in policy-making processes, including participation in decisions about
dividends or other distributions;
C. material transactions between the entity and its investee;
D. Interchange of managerial personnel; or
E. provision of essential technical information
Accounting for Investment in associates
Investments in associates are accounted for using the equity
method.
Under the equity method, the investment is initially recognized

at cost and subsequently adjusted for the investor's share in the
investee's changes in equity (e.g., profit or loss, dividends and
other comprehensive income).
Illustration:
On January 1, 20x1, Entity A acquires 20% interest in Entity B for $400,000. Entity B
reports profit of $100,000 and declares dividends of $50,000 in 20x1.
➤ The carrying amount of the investment in associate on December 31, 20x1 is

computed as follows:
Notes:
The investment is initially measured at cost (i.e., P400,000) and subsequently
adjusted for the investor's share in the associate's profit and dividends.
•Investment in associate is an asset; it has a normal debit balance. Thus,
the beginning balance is placed on the debit side of the T-account. The
ending balance is place the debit opposite side to facilitate analysis of the
equality of debits and credits.
•The share in profit is placed on the debit side because it increases in the
carrying amount of the investment.
•Dividends from investments accounted for using the equity method are
not income but rather reductions from the carrying amount of the
investment.
•The investment income in 20x1 is 20,000- the share in profit.
• Investments in associates are presented as noncurrent assets.
Application of the Equity method
An investor starts using the equity method as from the date when it
obtains significant influence or joint control over an investee.
On acquisition, the difference between the cost of the investment and
the entity's share in the net fair value of the investee's identifiable assets
and liabilities is accounted for as follows:
➤ If cost is greater than the fair value of the interest acquired, the excess
is goodwill.
➤If cost is less than the fair value of the interest acquired, the deficiency
is included as income in determining the entity's share in the investee's
profit or loss in the period of acquisition.
Any resulting goodwill is included in the carrying amount of the
investment and is not accounted for separately. Meaning the
goodwill is neither amortized nor tested for impairment
separately.
Adjustments are subsequently made on the entity's share in the

investee's profit or loss to account for the depreciation or
amortization of any undervaluation or overvaluation in the
inyestee's identifiable assets and liabilities.
Investee’s Financial statements and Accounting policies
When applying the equity method, the investor uses the
invester's most recent financial statements. When the reporting
periods of the investee and the investor do not coincide, the
investee shall prepare financial statements that coincide with the
investor's reporting period for purposes of applying the equity
method. If this is impracticable, adjustments shall be made for
significant transactions and events that occur between the end
of the investee's reporting period and that of the investor's. The
difference between the investor's and investee's end of reporting
periods shall not exceed three months.
Uniform accounting policies shall be used. If the investee uses
different accounting policies, its financial statements need to be
adjusted before the investor uses them for purposes of applying
the equity method.
Cumulative preference shares

If the investee has outstanding cumulative preference shares
that are held by parties other than the investor and classified as
equity, the investor computes its share of profits or losses after
deducting one-year dividends on those shares, whether declared
or not.
SHARE IN
LOSSES > Interest in the associate or joint
venture includes the following:
a.Carrying amount of the
The investor shares in the
investment in associate/joint
investee's losses only up to the
venture
amount of its interest in the
b. Investment in preference shares
associate or joint venture. of the associate/joint venture
C.Unsecured, long-term receivables
or loans
Interest in the associate or joint venture does not include
trade receivables and payables and secured long-term
receivables or loans.
Shares in losses are applied first to the carrying amount of the

investment in associate/joint venture. After this is zeroed-out,
shares in losses are applied to the other components of the
interest in the associate or joint venture in the reverse order of
their seniority (i.e., reverse order of priority in liquidation).
After the total balance of the interest in the associate or joint
venture is zeroed-out, the investor stops sharing in further
losses, except to the extent that the investor
a. has incurred legal or constructive obligations or

b. made payments on behalf of the associate.
If the investee subsequently reports profits, the investor

resumes recognizing its share in those profits only after its
share in the profits equals the share in losses not recognized.
EXEMPTIONS An investor is exempt from applying the equity
method if it is exempted from preparing
FROM consolidated financial statements, e.g.,
APPLYING THE the investor is a parent but is a subsidiary of

another parent and its securities are not being
EQUITY traded.
METHOD Investments in associates and joint ventures held

by an entity that is a venture capital organization,
mutual fund, unit trust, investment-linked insurance
fund and similar entities may be measured at fair
value through profit or loss in accordance with PFRS
9 Financial Instruments.
CLASSIFICATION HELD FOR SALE
Investments in associates or joint ventures that are classified as held for sale
in accordance with PFRS 5 Non-current Assets Held for Sale and Discontinued
Operation are accounted for using that standard. If only a portion of the
investment is classified as held for sale, the remaining portion is accounted
for using the equity method until the portion classified as held for sale is
actually sold. After the sale, the retained portion is accounted for under
PFRS9, unless significant influence or joint control remains, in which case the
equity method continues to be applied.
If the investment previously classified as held for sale ceases to be so

classified, it is accounted for using the equity method retrospectively from
the date of its classification as held for sale. The prior year financial
statements are restater accordingly.
DISCONTINUANCE OF EQUITY METHOD
An entity stops using the equity method as from the date when it loses
significant influence or joint control over the investee.
> If the investment becomes a subsidiary, it is accounted forusing PFRS 3

Business Combinations and PFRS 10 Consolidated Financial Statements.
> If the investment becomes a regular investment, it is accounted for using
PFRS 9. The fair value of the retained interest is regarded as its fair value on
initial recognition under PFRS 9. The difference between the following is
recognized in profit or loss:
a. the fair value of the retained interest and any proceeds from disposing
part of the investment; and
b. the carrying amount of the investment at the date the equity method
was discontinued.
If an investment in associate becomes an investment in joint venture or vice
versa, the entity continues to apply the equity method and does not
remeasure the retained interest.
When the equity method is discontinued, all amounts previously recognized

in other comprehensive income in relation to the investment are either
reclassified to profit or loss as a reclassification adjustment or transferred
directly to retained earnings using the provisions of other PFRSs. For
example, revaluation surplus is transferred directly to retained earnings while
exchange differences from translating foreign operations are reclassified to
profit or loss.
If ownership interest is reduced but significant influence or joint control is
not lost, only a proportionate amount of the OC plating to the reduction of
interest is reclassified to profit or loss transferred directly to retained
earnings, as appropriate.
Gains and losses resulting from transactions between an entity and its
associate or joint venture are recognized in the entity's financial statements
only to the extent of unrelated investors' interests in the associate or joint
venture.
The investor uses PFRS 11 Joint
Arrangements to determine whether its
INVESTMENT interest in a joint arrangement is an
IN JOINT investment in joint venture. If this is so,
the investor accounts for the investment
VENTURE in joint venture in accordance with PAS
28 i.e., using the equity method similar to
an investment in associate.
SUMMARY:
•An associate is an entity over which the investor has significant influence. Significant
influence is presumed to exist when ownership interest is 20% or more.
•Under the equity method, the investment in an associate or joint venture is initially
recognized at cost and subsequently adjusted for the investor's share in the investee's
changes in equity, such as profit or loss, dividends, and other comprehensive income.
•When an associate has cumulative preference shares, the investor computes for its share in
profit or loss after deducting one-year dividends on those shares, whether declared or not.
•he application of the equity method starts when significant influence or joint control is
obtained and stops when significant influence or joint control is lost.
•Share in losses of associate or joint venture is recognized only up to the amount of the
"interest in the associate or joint venture.”
THANK YOU!!

Brown Monochrome Simple Minimalist Research Project Final Defense Presentation Template

Uploaded by

Copyright:

Available Formats

Brown Monochrome Simple Minimalist Research Project Final Defense Presentation Template

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Brown Monochrome Simple Minimalist Research Project Final Defense Presentation Template

Uploaded by

Copyright:

Available Formats

PAS 28

INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

CINCO, FRANZE LEI KAIZEM B.

PAS 28 prescribes the accounting for investments in

The existence of significant influence distinguishes an

Under the equity method, the investment is initially recognized

➤ The carrying amount of the investment in associate on December 31, 20x1 is

Adjustments are subsequently made on the entity's share in the

Cumulative preference shares

Shares in losses are applied first to the carrying amount of the

a. has incurred legal or constructive obligations or

If the investee subsequently reports profits, the investor

APPLYING THE the investor is a parent but is a subsidiary of

METHOD Investments in associates and joint ventures held

If the investment previously classified as held for sale ceases to be so

> If the investment becomes a subsidiary, it is accounted forusing PFRS 3

When the equity method is discontinued, all amounts previously recognized

You might also like