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Accounting for Associates, Joint Arrangements and Equity Bas
Transcript of Accounting for Associates, Joint Arrangements and Equity Bas
Potential voting shares. E.g: investor AB and investee ACE
Loss of significant influence - investor loses the power to participate in the financial and operating policy decisions of that investee
Accounting treatment of associates
Parties agree to share control
The parties are bound by a contractual arrangements
INVESTMENT IN ASSOCIATES
An entity over which the investor has
JOINT OPERATION or JOINT VENTURE?
Accounting for Associates, Joint Arrangements and Equity Basis of Accounting
: INVESTMENT IN ASSOCIATES AND JOINT VENTURES
: JOINT ARRANGEMENTS
TYPES OF JOINT ARRANGEMENTS
Power to participate in the financial and operating policy decisions of the investee but not control or joint control of those policies.
If the investor holds, directly or indirectly 20% or more of the voting power of the investee- significant influence? YES!
If the investor holds less than 20% of the voting power of the investee- significant influence? NO!
EVIDENCE OF SIGNIFICANT INFLUENCE
by representation on the BOD
by participation in policy making processes
material inter-company transactions
interchange of managerial personnel
dependency of technical information
Investor's own financial statements
Account for the associate at cost, or in accordance to MFRS139 in its own financial statements
Accounting in investor's consolidated financial statements
If the entity is a parent that is exempt from preparing consolidated financial statements; or
When all of the following apply:
The entity itself is a wholly owned subsidiary, or is partially owned subsidiary and the other owners were informed and do not object to the parent not presenting consolidated financial statements.
The entity’s debt or equity instruments are not traded in a public market (not a listed entity).
The entity is not in the process of issuing in a public market its debt or equity instruments by filing its financial statements with the regulatory authorities like the securities commission.
The ultimate or any other intermediate parent of the investor produced consolidated financial statements.
The investment is classified in accordance with MFRS5.
The activity, duration and reporting obligations of the joint arrangement,
The appointment of the board of directors or equivalent governing body and voting rights of the venturers,
The decision making process such as voting rights, matters requiring decision by the parties and the required level of support for those matters.
Capital or other contribution by the parties, and
Manner of sharing among the parties of the joint arrangement’s assets, liabilities, revenue, expenses, profits or losses.
Gives 2 or more parties
of the arrangement
Decisions about the relevant activities of the joint arrangement have the
consent of all the parties sharing control
No single party controls the arrangement on its own
There could be parties that do not have joint control.
Example 1 and 2
Terms of contractual arrangements
Rights to the assets
Obligations for the liabilities
Revenues, expenses, profit or loss
Investment in associate or joint venture is initially recognised at cost.
Carrying amount is increased or decreased by the investor's share of the post-acquisition profits or losses of the investee.
The increases and decreases to the carrying amount of the investment will also include the investor’s share of changes to the investee’s other comprehensive income
Dividends and other distributions from the investee reduce the carrying amount of the investment.