Group Financial ReportingACF 202PART 4Associates and joint ventures Cynthia Fortin, CPA, CMA Spring 2017
Introducingassociates and joint ventures So far when P controls S we use ACQUISITION ACCOUNTING whichcreates GOODWILL and NCI. If interest in an entityfalls short of control 3 situations can arise.
0 < 20% No influence Investment IFRS 9 Financial instruments: no consolidation 20<50% Significant influence AssociateEquityaccounting IAS 28 50-50% Joint control Joint venture IFRS 11 Joint arrangements Equityaccounting >50/100 Dominant influence Subsidiary Acquisition accounting Investment Associate Subsidiary 50% 0% 100% 20% Joint Venture 50%/%50%
Associate An associateis an entity over which the parent has significant influence Equityaccountingrepresents the parents interest in the associate in a single line in the group statement of financial position. Significant influence isassumedwhen the parent has a holding of 20% or more of the shares but itis not a subsidiary or joint venture
Joint ventures Are entitiesthat the parent controlsjointly by a contractual agreement withanother party. Joint ventures are consolidated in the group accountsusingequityaccounting. Joint control isassumedwhen the parent has 50% of the shares and another party holds the other 50%.
Equityaccounting Accounting as non-currentassetinvestment in P’s books No cross casting, no NCI, no Goodwill, no sales, purchases and year-end balances eliminations. Consolidation adjustments are made for the % of post-acquisition profits, anyimpairmentloss on the investment and the % of purp. Labeled: Investment in Associate/Joint venture in group accounts
Group statement of financial position Investment in the associate / joint venture, as a non-currentassetinvestment Fair value of the P’sinvestment x Plus P’s % of the post-acquisition profits x Lessimpairmentloss on the investment (x) LessP’s % of purp if P is the seller (x) x
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References Clendon, Tom (2013), “A Student's Guide to Group Accounts, 2nd Ed.”, Kaplan Publishing UK ISBN: 9780857327642 chapters 13.