PAS 28

• When applying the equity method, the investor uses the investee'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.
• 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.
• Interest in the associate includes the following:

  1. Investment in associate measured under equity method
  2. Investment in preference shares of the associate
  3. Unsecured long-term receivables or loans
• Interest in the associate does not include the following:

  1. Trade receivables and payables
  2. 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.
• After the investor’s interest in the associate is reduced to zero, additional losses are provided for, and a liability is recognized only to the extent that the investor has incurred

  1. Legal or constructive obligations or
  2. Made payments on behalf of the associate
• If the associate subsequently reports profits, the investor resumes recognizing its share of those profits only after its share of the profits equals the share of losses not recognized.
• An investor is exempt from applying the equity method if it is exempted from preparing consolidated financial statements
• Investments in associated 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.
• Investments in associated or joint ventures that are classified as held for sale in accordance with PFRS 5 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 PFRS 9, 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.
• An investor ceases to apply the equity method on the date it loses significant influence or joint control over the investee.
• If the investment becomes a subsidiary, it is accounted for using PFRS 3.
• If the investment becomes a regular investment, it is accounted for using PFRS 9.
• The investor shall recognize in profit or loss any difference between:

  1. The fair value of any retained investment and any proceeds from disposing of the part interest in the associate; and
  2. The carrying amount of the investment at the date when significant influence is lost
• 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 OCI in relation to the investment are either

  1. Reclassified to profit or loss as a reclassification adjustment; or
  2. Transferred directly to retained earnings
• If ownership interest is reduced but significant influence or joint control is not lost, only a proportionate amount of the OCI relating to the reduction of interest is reclassified or transferred.
• 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.
• Associate 


  an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence
• Significant influence


   the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies
• Joint arrangement


  an arrangement of which two or more parties have joint control
• Joint Control


   the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control
• Joint Venture


  a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement
• Joint Venturer

  a party to a joint venture that has joint control of that joint venture
• Significant influence

  • 20% or more of the voting power of the investee, unless it can be clearly demonstrated that this is not the case
• Investment measured at fair value = Less than 20%

  Investment in Associate = 20% - 50%

  Investment in Subsidiary = 51% - 100%

  Investment in Joint Venture = Contractually agreed sharing of control
• The following may provide evidence of significant influence even if the percentage of ownership is less than 20%:

  1. Representation on the board of directors or equivalent governing body of the investee;
  2. Participation in policy-making processes, including participation in decisions about dividends or other distributions;
  3. Material transactions between the investor and the investee;
  4. Interchange of managerial personnel; or
  5. Provision of essential technical information
• Preference share is cumulative

  Deduct one-year dividend, whether declared or not before computing share in associate’s profit or loss
• Preference share is noncumulative


  Deduct dividends only when declared before computing share in associate’s profit or loss
• Preference share is redeemable

  No dividend is deducted when computing share in associate’s profit or loss
• An investor starts to apply the equity method on the date it obtains significant influence
• If cost > fair value of the interest acquired, the excess is goodwill

  If cost < fair value of the interest acquired, the deficiency is income
• Goodwill is included in the carrying amount, not accounted for separately, amortized, nor tested for impairment.