Financial Accounting II Lecture 15

Long Term Investments Presentation and Disclosure

Long Term investments are classified under following categories. Investment in Associated Undertaking Other Investments. Long Term Investments

Investment in associated undertaking can be an investment in Subsidiary Companies Associated Companies Interest in Joint Ventures Long Term Investments

Measurement, Presentation and Disclosure of Long Term Investments is governed by following standards. IAS 27, Consolidated and Separate Financial Statements IAS 28, Investments in Associates IAS 31, Interests in Joint Ventures IAS 32, Financial Instruments Disclosure and Presentation IAS 39, Financial Instruments Recognition and Measurement Long Term Investments

In the parent's / investor's individual financial statements, investments in subsidiaries, associates, and jointly controlled entities should be accounted for either: Investment in Subsidiaries IAS 27

at cost; or in accordance with IAS 39; or using equity method in accordance IAS 28 Investment in Subsidiaries IAS 27

Disclosures required in consolidated financial statements: the nature of the relationship between the parent and a subsidiary when the parent does not own, directly or indirectly through subsidiaries, more than half of the voting power; Investment in Subsidiaries IAS 27

the reasons why the ownership, directly or indirectly through subsidiaries, of more than half of the voting or potential voting power of an investee does not constitute control; Investment in Subsidiaries IAS 27

Direct Direct Subsidiary Subsidiary 60% 50% A B C Indirect Subsidiary Direct or Indirect Subsidiary

The reporting date of the financial statements of a subsidiary when such financial statements are used to prepare consolidated financial statements and are as of a reporting date or for a period that is different from that of the parent, and the reason for using a different reporting date or period; and Investment in Subsidiaries IAS 27

The nature and extent of any significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances. Investment in Subsidiaries IAS 27

In its consolidated financial statements, an investor should use the equity method of accounting for investments in associates, other than in the following exceptional circumstances: An investment in an associate that is acquired and held exclusively with a view to its disposal within 12 months from acquisition should be accounted for as held for trading under IAS 39. Under IAS 39, those investments are measured at fair value with fair value changes recognised in profit and loss. Investment in Associate IAS 28

An investor need not use the equity method if all of the following conditions are met 1.The investor is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the investor not applying the equity method; 2.The investor's debt or equity instruments are not traded in a public market; Investment in Associate IAS 28

Following disclosures are required: IAS 28 fair value of investments in associates for which there are published price quotations; summarised financial information of associates, including the aggregated amounts of assets, liabilities, revenues, and profit and loss; Investment in Associate IAS 28

explanations when investments of less than 20% are accounted for by the equity method or when investments of more than 20% are not accounted for by the equity method; use of a reporting date of the financial statements of an associate that is different from that of the investor; Investment in Associate IAS 28

nature and extent of any significant restrictions on the ability of associates to transfer funds to the investor in the form of cash dividends, or repayment of loans or advances; unrecognised share of losses of an associate, both for the period and cumulatively, if an investor has discontinued recognition of its share of losses of an associate; Investment in Associate IAS 28

explanation of any associate is not accounted for using the equity method; and summarised financial information of associates, either individually or in groups, that are not accounted for using the equity method, including the amounts of total assets, total liabilities, revenues, and profit and loss. Investment in Associate IAS 28

As per IAS 31, there are two treatments of accounting for an investment in jointly controlled entities Proportionate consolidation. Equity method of accounting. Investment in Joint Ventures

Proportionate consolidation. – Under proportionate consolidation, the balance sheet of the venturer includes its share of the assets that it controls jointly and its share of the liabilities for which it is jointly responsible. The income statement of the venturer includes its share of the income and expenses of the jointly controlled entity. IAS 31. Equity method of accounting. Investment in Joint Ventures

Equity Method – Procedures for applying the equity method are the same as those described in IAS 28, Investment in Associates. Investment in Joint Ventures IAS 31

A venturer is required to disclose: – Information about contingent liabilities relating to its interest in a joint venture. – Information about commitments relating to its interests in joint ventures. Investment in Joint Ventures IAS 31

– A listing and description of interests in significant joint ventures and the proportion of ownership interest held in jointly controlled entities. – The method it uses to recognise its interests in jointly controlled entities. Investment in Joint Ventures IAS 31

Other Long Term Investments are classified as ( IAS 32 and 39) Held to maturity investments Available for sale investments Long Term Investments