IAS 28 Investments in Associatesand

IAS 31 Interest in JV

In the books of investor: Initial recognition : At cost Subsequent recognition :

◦ Increase / decrease carrying amount with profit /loss of the associate

◦ Recognise profit / loss of subsidiary in P& L account of investor◦ Reduce the carrying amount with dividends received from

associates Adjust the carrying amount for the following:

◦ changes in the investee’s other comprehensive income due to : Changes arising from the revaluation of property, plant and

equipment foreign exchange translation differences.

Adjust investor’s other comprehensive income:◦ With the investor’s share of those changes arising from

revaluation , exchange difference etc.

Equity method

Example – Equity method

Investment A/C  

Details Amount in Rs.lakhs

Cost of investment 80

Share of post acquisition profit 25% 25

  105

Less : dividends received after acquisition 15

  90

Add : Share of revaluation surplus of PPE 25 % of Rs.40 lakhs 10

Carrying amount 100

P & L A/C  

Share of post acquisition profit 25

Statement of Comprehensive income  

Share of revaluation surplus 10

In Parent company’s separate financial statements, no need to follow equity method. It is followed only in consolidated statement

Presently Fair Value is not considered In AS dividend treatment is not specifically

mentioned, though as per general principles, the same is reduced from investment value

In IFRS , there is no concept of “Capital reserve”. Instead, when Net asset received is more than consideration paid, the excess is credited to P & L and corresponding increase in carrying amount.

Changes from current practice

Example

DescriptionAmount in

Rs. LakhsAmount in Rs.

Lakhs

  Situation 1 Situation 2

Investment at cost 80 80

Share of Net asset at FV 75 85

Goodwill / (capital reserve) 5 -5

Carrying amount ( goddwill is embeded) 80 85

     

In situation 2, Rs. 5 lakhs is credited to P & L    

Interest in associate = carrying amount + Other long term interest

Losses in excess of carrying amount of investment is recognised in “other interests”

After “other interests” are also exhausted, additional losses if any by way of amount paid by a parent on behalf of associate, a liability should be recognised.

Interests in associate

On loss of control, Reclassify the amounts recognized in

“Other comprehensive income” on the same basis as it would be done by the parent when it disposes assets / liabilities directly. For example :◦ The Profit or loss on financial assets held for

sale recognized in “Other comprehensive income” shall be reclassified to “P & L account”

◦ Revaluation surplus recognized in “Other comprehensive income “ shall be reclassified to “Retained earnings”.

Treatment of reclassification on loss of control

Consolidation of JV accounts Details Entity A Entity B Entity AB

Acquisition date Entity AB

  Amount in rupees

Share capital 70000 50000 20000 20000

Reserves and surplus 120000 130000 10000 6000

Loan Funds 70000 50000 40000 30000

Total 260000 230000 70000 56000

Net fixed assets 180000 200000 50000 40000

Investment in JV 1000 15000    

Net current assets 79000 15000 20000 16000

Total 260000 230000 70000 56000

financial statements after consolidation        

  Entity A   Entity B  

Share capital   70000   50000

Reserves and surplus 120000+2000 122000 130000+2000 132000

Capital reserve   12000    

Loan Funds 70000+20000 90000 50000+20000 70000

Total   294000   252000

Net fixed assets 180000+25000 205000 200000+25000 225000

Goodwill       2000

Investment in JV        

Net current assets 79000+10000 89000 15000+10000 25000

Total   294000   252000