PAS 28 INVESTMENT IN ASSOCIATE & JOINT VENTURE

PAS 28 prescribes the accounting for Any of the following may provide evidence
investments in associates and the of the existence of significant influence:.
application of the equity method to a. representation on the board of
investments in associates and joint directors or equivalent governing
ventures. body of the investee;.
Investors apply PAS 28 when they have b. participation in policy-making
significant influence or joint control over processes, including participation
an investee. in decisions about dividends or
other distributions;.
Investment in Associate. c. material transactions between the
An associate is " an entity over which the entity and its investee;.
investor has significant influence . " (PAS d. interchange of managerial
28.3). personnel; or.
The existence of significant influence e. provision of essential technical
distinguishes an investment in associate information. (PAS 28.6)
from all other types of investments.
Accounting for Investments in
Significant influence is "the power to associates 
participate in the financial and operating Investments in associates are accounted
policy decisions of the investee but is not for using the equity method.
control or joint control of those policies "
(PAS 28.3). Under the equity method, the investment
is initially recognized at cost and
Significant influence is presumed to exist subsequently adjusted for the investor's
if the investor holds, directly or indirectly share in the investee's changes in equity
( e.g. through subsidiaries, 20 % or more (e.g., profit or loss, dividends and other
of the voting power of the investee. comprehensive income).
Conversely, significant influence is
presumed not to exist if the voting
power is less than 20%. Application of the Equity method.
An investor starts using the equity method
However, these are only presumptions, as from the date when it obtains
meaning they are generally held to be true significant influence or joint control over
in the absence of evidence to the an investee.
contrary. Thus, an investor may have
significant influence even if it has less On acquisition, the difference between the
than 20% voting power, and conversely, cost of the .. investment and the entity's
may not have significant influence even if share in the net fair value of the investee's
it has more than 20 % voting power if identifiable assets and liabilities is
these can be clearly demonstrated. accounted for as follows:

When determining the existence of  If cost is greater than the fair value
significant influence, an entity considers of the interest acquired, the excess
the effect of potential voting rights that are is goodwill.
currently exercisable.  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
PAS 28 INVESTMENT IN ASSOCIATE & JOINT VENTURE
PAS 28 INVESTMENT IN ASSOCIATE & JOINT VENTURE

the investee's profit or loss in the year dividends on those shares, whether
period of acquisition. declared or not.
Share in Losses.
Any resulting goodwill is included in the The investor shares in the investee's
carrying amount of the investment and is losses only up to the amount of its interest
not accounted for separately. Meaning, in the associate or joint venture.
the goodwill is neither amortized nor
tested for impairment separately. Interest in the associate or joint venture
includes the following:
Adjustments are subsequently made on
a. Carrying amount of the investment
the entity's share in the investee's profit or
in associate / joint venture
loss to account for the depreciation or
b. Investment in preference shares of
amortization of any undervaluation or
the associate / joint venture
overvaluation in the investee's identifiable
c. Unsecured, long-term receivables
assets and liabilities.
or loans.
Investee's Financial statements and
accounting policies. Interest in the associate or joint venture
When applying the equity method, the does not include trade receivables and
investor uses the investee's most recent payables and secured long-term
financial statements. When the reporting receivables.
periods of the investee and the investor or loans
do not coincide, the investee shall prepare
financial statements that coincide with the Shares in losses are applied first to the
investor's reporting period for purposes of carrying amount of the investment in
applying the equity method. If this is associate / joint venture. After this is
impracticable, adjustments shall be made zeroed - out, shares in losses are applied
for significant transactions and events that to the other components of the interest in
occur between the end of the investee's the associate or joint venture in the
reporting period and that of the investor's. reverse order of their seniority (i.e.,
The difference between the investor's and reverse order of priority in liquidation)
investee's end of reporting.
periods shall not exceed three months. After the total balance of the interest in the
associate or joint.
Uniform accounting policies shall be used. venture is zeroed - out, the investor stops
If the investee uses different accounting sharing in further losses, except to the
policies, its financial statements need to extent that the investor.
be adjusted before the investor uses them a. has incurred legal or constructive
for purposes of applying the equity obligations or
method. b. made payments on behalf of the
associate.
Cumulative preference shares.
If the investee has outstanding cumulative If the investee subsequently reports
preference shares that are held by parties profits, the investor resumes recognizing
other than the investor and classified as its share in those profits only after its
equity , the investor computes its share of share in the profits equals the share in
profits or losses after deducting one- losses not recognized.

PAS 28 INVESTMENT IN ASSOCIATE & JOINT VENTURE

PAS 28 INVESTMENT IN ASSOCIATE & JOINT VENTURE

Exemptions from applying the Equity  If the investment becomes a

method. subsidiary, it is accounted for using
An investor is exempt from applying the PFRS 3 Business Combinations
equity method if it is exempted from and PFRS 10 Consolidated
preparing consolidated financial Financial Statements.
statements, e.g., the investor is a parent
but is a subsidiary of another parent and  If the investment becomes a
its securities are not being traded regular investment, it is accounted
for using PFRS 9. The fair value of
Investments in associates and joint the retained interest is regarded as
ventures held by an entity that is a venture its fair value on initial recognition
capital organization, mutual fund, unit under PFRS 9.
trust, investment-linked insurance fund
and similar entities may be measured at
fair value through profit or loss in The difference between the following is
accordance with PFRS 9 Financial recognized in profit or loss :.
Instruments.
a) the fair value of the retained
Classification as Held for sale. interest and any proceeds from
Investments in associates or joint disposing part of the investment;
ventures that are classified as held for and.
sale in accordance with PFRS 5 Non- b) the carrying amount of the
current Assets Held for Sale and investment at the date the equity
Discontinued Operation are accounted for method was discontinued.
using that standard. If only a portion of the
investment is classified as held for sale, If an investment in associate becomes an
the remaining portion is accounted for investment in joint venture or vice versa ,
using the equity method until the portion the entity continues to apply the equity
classified as held for sale is actually sold . method and does not remeasure the
After the sale, the retained portion is retained interest .
accounted for under PFRS 9, unless When the equity method is discontinued,
significant influence or joint control all amounts previously recognized in other
remains , in which case the equity method comprehensive income in relation to the
continues to be applied. investment are either reclassified to profit
or loss as a reclassification adjustment or
If the investment previously classified as transferred directly to retained earnings
held for sale ceases to be so classified , it using the provisions of other PFRSs . For
is accounted for using the method example, revaluation surplus is
retrospectively from the date of its transferred directly to retained earnings
classification as held for sale . The prior while exchange differences from
year financial statements are restated. translating foreign operations are
accordingly reclassified to profit or loss .

Discontinuance of Equity method. If ownership interest is reduced but

An entity stops using the equity method as significant influence or joint control is not
from the date when it loses significant lost , only a proportionate amount of the
influence or joint control over the investee OC relating to the reduction of interest is
PAS 28 INVESTMENT IN ASSOCIATE & JOINT VENTURE
PAS 28 INVESTMENT IN ASSOCIATE & JOINT VENTURE

reclassified to profit or loss or transferred - The application of the equity

directly to retained earnings as method starts when significant
appropriate. influence or joint control is
obtained and stops when
Gains and losses resulting from significant influence or joint control
transactions between an entity and its is lost .
associate or joint venture are recognized
in the entity's financial statements only to - Share in losses of associate or
the extent of unrelated investors ' interests joint venture is recognized only up
in the associate or joint venture . to the amount of the "interest in
the associate or joint venture "
Investment in Joint Venture.
The investor uses PFRS 11 Joint
Arrangements to determine whether its
interest in a joint arrangement is an
investment in joint venture . If this is so ,
the investor accounts for the investment 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 equiy ,
such as profit or lost,
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 .

PAS 28 INVESTMENT IN ASSOCIATE & JOINT VENTURE