IAS 28 | Investments in Associates and Joint Ventures

1

Objective

The objective is to prescribe the accounting for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.

2

Scope

This standard shall be applied by all entities that are investors with joint control of, or significant influence over, an investee.

3

Definitions

The following terms are used in this Standard with the meanings specified:

• An associate is an entity over which the investor has significant influence.
• Consolidated financial statements are the financial statements of a group in which assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.
• The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor's share of the investee's net assets. The investor's profit or loss includes its share of the investee's profit or loss and the investor's other comprehensive income includes its share of the investee's other comprehensive income.
• A joint arrangement is an arrangement of which two or more parties have joint control.
• Joint control is 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.
• A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
• A joint venturer is a party to a joint venture that has joint control of that joint venture.
• Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies.

5

Significant Influence

If an entity holds 20 per cent or more of the voting power, it is presumed to have significant influence unless demonstrated otherwise. Conversely, holding less than 20 per cent presumes no significant influence unless clearly demonstrated. Majority ownership by another does not preclude significant influence.

6

Evidence of Influence

Evidence includes representation on the board, participation in policy-making (including dividends), material transactions, interchange of managerial personnel, or provision of essential technical information.

7

Potential Voting Rights

Potential voting rights (e.g., warrants, options, convertible instruments) that are currently exercisable or convertible are considered when assessing significant influence.

9

Loss of Influence

Significant influence is lost when the entity loses the power to participate in policy decisions. This can occur with or without a change in ownership levels, such as when an associate becomes subject to control by a government or regulator.

10

Equity Method Basics

The investment is recognised at cost and adjusted for the investor's share of profit or loss and other comprehensive income of the investee. Distributions received reduce the carrying amount.

11

Distributions vs Performance

Recognising income based only on distributions may not measure performance adequately. The equity method provides more informative reporting of the investor's net assets and profit or loss by reflecting the investor's interest in the investee's performance.

12

Voting Rights in Equity Method

While potential voting rights determine significant influence, the investor's share of profit or loss is generally determined based on existing ownership interests, unless the potential rights currently give access to returns.

14

IFRS 9 Interaction

IFRS 9 does not apply to interests accounted for using the equity method. However, IFRS 9 applies to other financial instruments in an investee (like long-term loans) to which the equity method is not applied.

16

Application Requirement

An entity with joint control or significant influence shall use the equity method unless the investment qualifies for an exemption.

17

Exemption Conditions

An entity need not apply the equity method if it is a parent exempt from consolidation under IFRS 10, or if it meets specific criteria: it is a wholly/partially owned subsidiary where owners do not object, its instruments are not traded publicly, it is not filing for public issuance, and its ultimate/intermediate parent produces public IFRS consolidated financials.

18

Venture Capital Exemption

Venture capital organisations, mutual funds, and similar entities may elect to measure investments in associates or joint ventures at fair value through profit or loss in accordance with IFRS 9. This election is made separately for each investment at initial recognition.

20

Held for Sale

Investments classified as held for sale under IFRS 5 are accounted for in accordance with that standard. Any retained portion not held for sale is accounted for using the equity method until disposal.

22

Discontinuing Equity Method

Use of the equity method is discontinued when the investment ceases to be an associate or joint venture. If it becomes a subsidiary, IFRS 3 and IFRS 10 apply. If it becomes a financial asset, the retained interest is measured at fair value under IFRS 9.

23

Reclassification on Discontinuance

When discontinuing the equity method, amounts previously recognised in other comprehensive income are accounted for on the same basis as if the investee had directly disposed of the related assets or liabilities (often reclassified to profit or loss).

25

Partial Disposal

If ownership is reduced but the investment remains an associate or joint venture, a proportionate amount of the gain or loss previously recognised in other comprehensive income is reclassified to profit or loss.

26

Procedures

Procedures for the equity method are similar to consolidation procedures in IFRS 10. Concepts underlying acquisition accounting are also adopted.

27

Group Share

The group's share is the aggregate of holdings by the parent and its subsidiaries. Holdings by other associates or joint ventures are ignored.

28

Upstream/Downstream

Gains and losses from upstream (investee to investor) and downstream (investor to investee) transactions are recognised only to the extent of unrelated investors' interests. The investor's share of such gains/losses is eliminated.

32

Acquisition Differences

On acquisition, goodwill (excess of cost over share of net fair value) is included in the carrying amount and not amortised. Any excess of share of net fair value over cost is recognised as income in determining the share of profit or loss in the period of acquisition.

33

Financial Statements

The most recent available financial statements of the investee are used. If dates differ, the investee prepares statements as of the investor's date unless impracticable.

34

Date Difference

If dates differ, adjustments are made for significant transactions between the dates. The difference shall be no more than three months.

35

Uniform Policies

The investor's financial statements shall be prepared using uniform accounting policies for like transactions. Adjustments are made to the investee's statements to conform to the investor's policies.

38

Losses

If an investor's share of losses equals or exceeds its interest (including long-term interests that form part of the net investment), recognition of further losses is discontinued. A liability is recognised only if the investor has incurred legal/constructive obligations or made payments on behalf of the investee.

40

Impairment

After applying the equity method, the entity applies IFRS 9 to determine if any additional impairment loss is recognised for other interests. Then, the net investment in the associate/joint venture is tested for impairment.

41A

Objective Evidence

The net investment is impaired if there is objective evidence of impairment as a result of one or more loss events (e.g., significant financial difficulty, breach of contract) that impact estimated future cash flows.

42

Impairment Testing

Because goodwill is not separately recognised, the entire carrying amount of the investment is tested for impairment as a single asset under IAS 36.

44

Separate Financial Statements

Investments in associates and joint ventures are accounted for in separate financial statements in accordance with IAS 27 (at cost, IFRS 9, or equity method).