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Investment in Associates

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3 views2 pages

Investment in Associates

Uploaded by

tevesstevestephine.12
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CFAS Notes

(Conceptual Framework and Accounting Standards 2022 Edition by C. Valix)

CHAPTER 18 carrying amount of the


Investment in Associates investment.
d. Note that the investment must
An associate is simply defined as an be in ordinary shares.
entity over which the investor has e. If the investor has significant
significant influence. influence over the investee, the
investee is said to be an
 Significance influence is the associate.
power to participate in the
financial and operating policy Excess of cost over carrying
decisions of the associate. amount

If the investor holds, directly or An accounting problem arises if the


indirectly through subsidiaries, 20% investor pays more or less for an
or more of the voting power of the investment than the carrying amount of
investee, it is presumed that the underlying net assets.
investor has significant influence,
unless it can be clearly demonstrated If the investor pays more than the
that this is not the case. carrying amount of the net assets
acquired, the difference is commonly
Measurement of investment in known as excess of cost over
associate carrying amount and may be
attributed to the following:
The investment in associate is a. Undervaluation of the
measured using the equity method of investee's assets, such as
accounting. The accounting building, land and inventory.
procedures under the equity method b. Goodwill
are:
a. The investment is initially If the assets of the investee are fairly
recognized at cost. valued, the excess of cost over
b. The carrying amount is carrying amount of the underlying net
increased by the investor's assets is attributable to goodwill.
share of the profit of the
investee and decreased by the If the excess is attributable to
investor's share of the loss of undervaluation of depreciable asset,
the investee. it is amortized over the remaining
The investor's share of the life of the depreciable asset.
profit or loss of the investee is
recognized as investment If the excess is attributable to
income. undervaluation of land, it is not
c. Dividends received from an amortized because the land is
equity investee reduce the nondepreciable.
The fair value of the investment at
The amount is expensed when the the date it ceases to be an associate
land is sold. shall be regarded as the fair value on
initial recognition as a financial asset.
If the excess is attributable to
The difference between the carrying
inventory, the amount is expensed
amount of the retained investment at
when the inventory is already sold.
the date the significant influence is
lost and the fair value of the retained
If the excess is attributable to
investment shall be included in profit
goodwill, it is included in the carrying
or loss.
amount of the investment and not
amortized. Equity method not applicable

However, the entire investment in PAS 28, paragraph 17,


associate including the goodwill is an investment in associate shall not
tested for impairment at the end of be accounted for using the equity
each reporting period. method if the investor is a parent
that is exempt from preparing
consolidated financial statements or if
Excess for fair value over cost all of the following apply:

PAS 28, paragraph 32, provides that  The investor is a wholly-owned


subsidiary, or a partially owned
any excess of the investor's share of
subsidiary of another entity and the
the net fair value of the associate's
other owners do not object to the
identifiable assets and liabilities over investor not applying the equity
the cost of the investment is included method.
as income in the determination of the  The investor's debt and equity
investor's share of the associate's instruments are not traded in a
profit or loss in the period in which the public market or over the counter
investment is acquired. market.
 The investor did not file or it is not
in the process of filing financial
statements with the SEC for the
Discontinuance of equity method purpose of issuing any class of
PAS 28, paragraph 22, instruments in a public market.
 The ultimate or any intermediate
 an investor shall discontinue parent of the investor produces
the use of the equity method consolidated financial statements
from the date that it ceases to available for public use that comply
with Philippine Financial Reporting
have significant influence
Standards.
over an associate.
 on the date the significant
influence is lost, the investor
shall measure any retained
investment in associate at fair
value.

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