Associates & Joint Ventures

• Associate


  An entity over which the investor has significant influence
• Significant influence


  The power to participate in financial and operating policy decisions of the investee, but is not control or joint control over those policies
• Holding 20% or more of the voting power in an investee


  Is presumed to provide the investor with significant influence
• Equity method


  1. Cost + /- group's share of the associate's post-acquisition profits (or losses) – impairment

  2. Group share of associate's profit after tax

  3. Group share of associate's other comprehensive income after tax
• Equity method


  • Single line entry in the consolidated statement of P/L
  • The investment in the associate will also include any other long-term interests in the associate
  • Fair value adjustments are required and the group share of intra-group unrealised profits must be eliminated to the extent of the inventor's share
  • No goodwill will be recognised
• Intercompany Transactions


  1. Trading transactions should not be cancelled on consolidation

  2. Any unrealized profit should be eliminated

  3. Only the investor's share of the unrealised profit should be eliminated

  4. The adjustment is made in the accounts of the seller

  5. For dividend received from associates, the reversal entries; Dr Parent retained earnings, Cr. Investment in Associate
• Joint arrangements


  Arrangements where two or more parties have joint control
• Joint operations


  • The parties that have joint control have rights to the assets and obligations for the liabilities. No separate entities.
• Joint ventures


  • The parties have joint control of the arrangement and have rights to the net assets of the arrangement. Separate entity to conduct the joint venture activities.
• Joint operations accounting


  Each joint operator will recognise its share of assets held jointly, its share of liabilities incurred jointly, its share of revenue from the joint operation, its share of expenses from the joint operation
• Joint ventures accounting


  1. In individual financial statement, an investment in JV can be accounted for cost, IFRS 9 or equity method

  2. In the consolidated financial statements, the interest in the joint venture entity will be accounted for using the equity method in accordance with IAS 28
• Transactions between a venturer and the joint venture

  Adjustment is required for any unrealised profit
• The receivables or payables outstanding between a joint venture and the venture, should not be eliminated