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CONCEPTUAL FRAMEWORK
&
ACCOUNTING STANDARDS

PAS 28 Investments in Associates and Joint

Ventures

Learning Objectives

• Define an investment in associate.

• Describe the accounting requirements for
investments in associates and joint ventures.

FAR PART 1B: Zeus Vernon B. Millan

Definition of terms

• Associate – an entity, including an unincorporated

entity such as a partnership, over which the investor has
significant influence.
• Significant influence – the power to participate in
the financial and operating policy decisions of the
investee but is not control or joint control over those
policies.
(PAS 28)

FAR PART 1B: Zeus Vernon B. Millan

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Significant influence
• Significant influence is presumed to exist if the investor holds,
directly or indirectly (e.g. through subsidiaries), 20% or more
of the voting power of the investee, unless it can be clearly
demonstrated that this is not the case.

FAR PART 1B: Zeus Vernon B. Millan

Evidence of existence of significant influence by

an investor
The following may provide evidence of significant influence even if
the percentage of ownership interest is less than 20%.
a) Representation on the board of directors or equivalent governing
body of the investee;
b) Participation in policy-making processes, including participation
in decisions about dividends or other distributions;
c) Material transactions between the investor and the investee;
d) Interchange of managerial personnel; or
e) Provision of essential technical information.

FAR PART 1B: Zeus Vernon B. Millan

Equity method
• Investments in associates or joint ventures are accounted
for using the equity method. Under this method, the
investment is initially recognized at cost and
subsequently adjusted for the investor’s share in the
changes in the EQUITY of the investee.

FAR PART 1B: Zeus Vernon B. Millan

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Effect on
Effect on
Share in associate’s investment in
investment income
associate
a. Profit or loss - increase for share - increase for share
in profit/ decrease in profit; decrease
for share in loss for share in loss

b. Dividends - decrease - no effect

c. Other - increase for share - no effect; the share

comprehensive in gain/ decrease in OCI is included
income for share in loss in the investor’s
OCI

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Standards (by: Zeus Vernon B. Millan)

Preference shares issued by an associate

If an associate has outstanding preference shares that are held by
parties other than the investor, the investor computes its share of
profits or losses after making the following adjustments.
Preference share is Preference share is Preference share is
cumulative noncumulative redeemable
 Deduct one-year  Deduct dividends  No dividend is
dividend, only when declared deducted when
whether declared before computing computing share in
or not before share in associate’s associate’s profit or
computing share profit or loss. loss.
in associate’s
profit or loss.

FAR PART 1B: Zeus Vernon B. Millan

Discontinuance of the use of equity method

• An investor starts to apply the equity method on the date it obtains
significant influence and ceases to apply the equity method on the
date it loses significant influence.
• On the loss of significant influence, the investor shall measure at
fair value any investment the investor retains in the former
associate. The investor shall recognize in profit or loss any
difference between:
a. The fair value of any retained investment and any proceeds
from disposing of the part interest in the associate; and
b. The carrying amount of the investment at the date when
significant influence is lost.

FAR PART 1B: Zeus Vernon B. Millan

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Classification of retained interest

Following the discontinuance of equity method, the retained interest
shall be classified as follows:

Loss of significant influence due Accounting treatment

to

 Decrease of ownership interest  Financial asset at fair value

below 20%. under PFRS 9
 Increase of ownership above  Investment in subsidiary under
50% PFRS 3 and PFRS 10

FAR PART 1B: Zeus Vernon B. Millan

Reclassification of cumulative OCI

• If an investor loses significant influence over an associate, all
amounts recognized in other comprehensive income in relation to
the associate shall be accounted on the same basis as would be
required if the associate had directly disposed of the related assets or
liabilities.

FAR PART 1B: Zeus Vernon B. Millan

Share in losses of associate

If an investor’s share of losses of an associate equals or exceeds its
interest in the associate, the investor discontinues recognizing
its share of further losses.

Interest in the associate includes the following:

1. Investment in associate measured under equity method
2. Investment in preference shares of the associate
3. Unsecured long-term receivables or loans

Interest in the associate does not include the following:

1. Trade receivables and payables
2. Secured long-term receivables or loans

FAR PART 1B: Zeus Vernon B. Millan

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Share in losses of associate - continuation

After the investor’s interest in the associate is reduced to zero,
additional losses are provided for, and a liability is recognized, only to
the extent that the investor has incurred
a. Legal or constructive obligations or
b. Made payments on behalf of the associate.

• Any other losses are not recognized.

• If the associate subsequently reports profits, the investor resumes

recognizing its share of those profits only after its share of the
profits equals the share of losses not recognized.

FAR PART 1B: Zeus Vernon B. Millan

APPLICATION OF
CONCEPTS
PROBLEM 2: FOR CLASSROOM DISCUSSION

Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 14

 QUESTIONS????
 REACTIONS!!!!!

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Standards (by: Zeus Vernon B. Millan)

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END
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