Wiley IFRS: Practical Implementation Guide and Workbook, 3rd Edition

Chapter 20

INVESTMENTS IN ASSOCIATES (IAS 28)

BACKGROUND AND INTRODUCTION

This Standard is to be applied to all accounting for investments in associates but does not apply to investments in associates held by a venture capital organization, a mutual fund, a unit trust, and a similar entity, including investment-linked insurance funds, where these investments upon initial recognition are designated at fair value through profit or loss or classified as held for trading and accounted for in accordance with IAS 39.

DEFINITIONS OF KEY TERMS

(in accordance with IAS 28)

 

Associate. An entity in which an investor has significant influence but which is neither a subsidiary nor an interest in a joint venture.

Significant influence. The power to participate in the financial and operating policy decisions of the investee but not to control them; that control includes joint control over those policies.

Equity method. A method of accounting by which an investment is initially recognized at cost and adjusted thereafter to reflect the post acquisition change in the investor’s share of the net assets of the investee. The profit or loss attributable to the investment in the associate is included in the investor’s statement of comprehensive income.

SIGNIFICANT INFLUENCE

It is presumed that the investor has significant influence if it holds directly or indirectly 20% or more of the voting power of the associate unless it can be clearly shown that significant influence does not exist. If the ...