‭PAS 28 Investment in Associates‬

‭ quity method of accounting for share‬

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‭Associate‬
‭investment‬
‭●‬ A
‭ n entity over which the investor has significant‬
‭●‬ T ‭ he investment in associate is measured using‬
‭influence.‬
‭the‬‭equity method of accounting‬‭which is based‬
‭on the economic relationship between. the‬
‭Significant influence‬
‭investor and the investee. The investor and the‬
‭●‬ T
‭ he power to participate in the‬‭financial‬‭and‬
‭investee are viewed as a‬‭single economic unit‬
‭operating policy decisions‬‭of the associate‬‭but‬
‭where they are one and the same.‬
‭not control‬‭or joint control over those policies‬
‭●‬ ‭The equity method is applicable when the‬
‭investor has a significant influence over the‬
‭ ractical guidance in determining significant‬
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‭investee.‬
‭influence‬ ‭●‬ ‭Accounting procedures - equity method‬
‭●‬ I‭f you hold‬‭20% or more‬‭of the voting power‬ ‭1.‬ ‭The investment is initially recognized‬‭at‬
‭(directly or indirectly through subsidiaries), it's‬ ‭cost‬‭(the amount paid for.)‬
‭generally assumed that you‬‭have‬‭significant‬ ‭2.‬ ‭The carrying amount is‬‭increased by the‬
‭influence unless proven otherwise.‬ ‭investor's share of the profit‬‭of the‬
‭If you hold‬‭less than 20%‬‭, it's generally assumed‬ ‭investee and‬‭decreased by the‬
‭you‬‭don't have‬‭significant influence unless you‬ ‭investor's share of the loss‬‭of the‬
‭can prove that you do.‬ ‭investee.‬
‭●‬ ‭Even if another investor owns most of the‬ ‭The investor's share of the profit or loss‬
‭company, that doesn't automatically mean you‬ ‭of the investee is recognized as‬
‭can't have significant influence.‬ ‭investment income‬‭.‬
‭●‬ ‭When an investor exercises significant influence‬ ‭3.‬ ‭Dividends received from an equity‬
‭over the investee, one or more of the following‬ ‭investee‬‭reduce‬‭the carrying amount of‬
‭indicators is usually present:‬ ‭the investment.‬
‭1.‬ ‭Representation in the board of directors‬ ‭4.‬ ‭Note that the investment must be in‬
‭2.‬ ‭Participation in policy-making processes‬ ‭ordinary shares.‬
‭3.‬ ‭Material transactions between the‬ ‭If you’ve invested in preference shares‬
‭investor and the investee‬ ‭(which don’t give you voting rights), the‬
‭4.‬ ‭Interchange of managerial personnel‬ ‭equity method doesn't apply.‬
‭5.‬ ‭Provision of essential technical‬ ‭5.‬ ‭Technically, if the investor has significant‬
‭information‬ ‭influence over the investee, the‬‭investee‬
‭is said to be an‬‭associate‬‭.‬
‭Accordingly, under the equity method,‬
‭the investment in ordinary shares should‬
‭be appropriately described as‬
‭investment in associate‬‭.‬
‭6.‬ ‭The investment in associate accounted‬
‭for using the equity method shall be‬
‭reported as a‬‭noncurrent asset‬‭.‬
‭ Excess of cost over carrying amount” with‬
“ ‭Discontinuance of the equity method‬
‭respect to acquisition of share investment‬ ‭●‬ A ‭ n investor should discontinue the use of the‬
‭●‬ I‭f the investor pays more than the carrying‬ ‭equity method from the date that it‬‭ceases to‬
‭amount of the net assets acquired, the‬ ‭have significant influence‬‭over an associate‬
‭difference is commonly known as "excess of‬ ‭●‬ ‭After losing significant influence, you account for‬
‭cost over carrying amount"‬ ‭the investment as one of the following:‬
‭●‬ ‭If the assets of the investee are‬‭fairly valued‬‭, the‬ ‭1.‬ ‭Financial Asset at Fair Value Through‬
‭excess of cost over carrying amount of the‬ ‭Profit or Loss‬
‭underlying net assets is attributable to‬‭goodwill.‬ ‭2.‬ ‭Financial Asset at Fair Value Through‬
‭●‬ ‭If the excess is attributable to‬‭undervaluation of‬ ‭Other Comprehensive Income‬
‭a depreciable asset‬‭, it is‬‭amortized‬‭over the‬ ‭3.‬ ‭Nonmarketable Investment at Cost or‬
‭remaining life of the depreciable asset.‬ ‭Unquoted Equity Instrument‬
‭●‬ ‭If the extra cost is because‬‭land is undervalued‬‭,‬ ‭ easurement of the investment in associate‬
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‭you‬‭don't amortize‬‭it since land doesn’t lose‬ ‭when significant influence is lost‬
‭value over time. You only recognize the amount‬ ‭●‬ O ‭ n the date you lose significant influence, you‬
‭as an expense when the land is sold.‬ ‭measure any remaining investment at‬‭fair value‬‭.‬
‭●‬ ‭If the extra cost is because‬‭inventory is‬ ‭This fair value will then be treated as the fair‬
‭undervalued‬‭, you recognize the extra cost as an‬ ‭value on initial recognition as a financial asset.‬
‭expense‬‭when the inventory is sold.‬ ‭●‬ ‭The difference between the carrying amount of‬
‭●‬ ‭If the excess is attributable to‬‭goodwill‬‭, it is‬ ‭the retained investment and the fair value is‬
‭included in the‬‭carrying amount of the‬ ‭recorded as a‬‭gain or loss‬‭in profit or loss.‬
‭investment‬‭and not amortized.‬ ‭Additionally, if you sell part of the investment, the‬
‭However, the entire investment in associate‬ ‭difference between the sale proceeds and the‬
‭including the goodwill is tested for impairment at‬ ‭carrying amount is also recognized as a gain or‬
‭the end of each reporting period.‬ ‭loss.‬

‭ ircumstances when the equity method is not‬

C
‭Excess of fair value over cost‬ ‭applicable‬
‭●‬ I‭f the value of what you’ve invested in is higher‬ ‭●‬ A ‭ n investment in associate shall not be‬
‭than what you paid for it, that extra value is‬ ‭accounted for using the equity method if the‬
‭treated as‬‭income‬ ‭investor is a parent that is exempt from‬
‭preparing consolidated financial statements‬‭or if‬
I‭mpairment loss with respect to an investment‬ ‭all of the following apply.‬
‭in associate‬ ‭1.‬ ‭The investor is a wholly-owned or‬
‭●‬ I‭f there is an indication that an investment in‬ ‭partially-owned subsidiary, and other‬
‭associate may be impaired, an impairment loss‬ ‭owners agree‬‭not to use the equity‬
‭shall be recognized whenever the carrying‬ ‭method.‬
‭amount of the investment in associate exceeds‬ ‭2.‬ ‭The investor's debt and equity‬
‭recoverable amount‬ ‭instruments‬‭aren’t traded‬‭on public or‬
‭●‬ ‭The recoverable amount is measured as the‬ ‭over-the-counter markets.‬
‭higher‬‭between‬‭fair value less cost of disposal‬ ‭3.‬ ‭The investor isn’t filing financial‬
‭and‬‭value in use‬‭.‬ ‭statements with the SEC or‬‭doesn’t plan‬
‭●‬ ‭If there's an impairment, it affects the whole‬ ‭to issue instruments in a public market‬‭.‬
‭investment, including any goodwill.‬ ‭4.‬ ‭The investor’s ultimate or any‬
‭●‬ ‭The recoverable amount of an investment in‬ ‭intermediate‬‭parent prepares‬‭and‬
‭associate is assessed for‬‭each individual‬ ‭publicly shares‬‭consolidated financial‬
‭associate‬‭.‬ ‭statements that follow Philippine‬
‭Financial Reporting Standards‬‭.‬
‭ ccounting procedure if an associate has‬
A ‭●‬ ‭If these conditions apply, the investment should‬
‭cumulative and noncumulative preference‬ ‭be accounted for as one of the following:‬
‭shares‬ ‭1.‬ ‭Financial Asset at Fair Value Through‬
‭●‬ C ‭ umulative Preference Shares:‬‭Subtract‬ ‭Profit or Loss.‬
‭preference dividends from your share of‬ ‭2.‬ ‭Financial Asset at Fair Value Through‬
‭earnings,‬‭whether or not‬‭the dividends are‬ ‭Other Comprehensive Income.‬
‭declared.‬ ‭3.‬ ‭Nonmarketable Investment at Cost or‬
‭●‬ ‭Noncumulative Preference Shares‬‭: Subtract‬ ‭Investment in Unquoted Equity‬
‭preference dividends only if they are‬‭declared‬‭.‬ ‭Instrument.‬