Group Financial Reporting ACF 202 PART 4 Associates and joint ventures Cynthia Fortin, CPA, CMA FALL 2018

Introducing associates and joint ventures So far when P controls S we use ACQUISITION ACCOUNTING which creates GOODWILL and NCI. If interest in an entity falls short of control 3 situations can arise.

0 < 20% No influence Investment IFRS 9 Financial instruments: no consolidation 20<50% Significant influence Associate Equity accounting IAS 28 50-50% Joint control Joint venture IFRS 11 Joint arrangements Equity accounting >50/100 Dominant influence Subsidiary Acquisition accounting Investment Associate Subsidiary 50% 0% 100% 20% Joint Venture 50%/%50%

Associate An associate is an entity over which the parent has significant influence Equity accounting represents the parents interest in the associate in a single line in the group statement of financial position. Significant influence is assumed when the parent has a holding of 20% or more of the shares but it is not a subsidiary or joint venture

Joint ventures Are entities that the parent controls jointly by a contractual agreement with another party. Joint ventures are consolidated in the group accounts using equity accounting. Joint control is assumed when the parent has 50% of the shares and another party holds the other 50%.

Equity accounting Accounting as non-current asset investment 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, any impairment loss 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- current asset investment Fair value of the P’s investment x Plus P’s % of the post-acquisition profits x Less impairment loss on the investment (x) Less P’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.