PAS 28

INVESTMENT IN ASSOCIATE
AND JOINT VENTURES
 Objective

• This Standard 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.
 Scope

• This Standard shall be applied by all entities that are

investors with joint control of, or significant influence
over, an investee.
• Does not apply to investments in associates held by a
venture capital organization, a mutual fund, a unit
trust, and a similar entity (use PFRS 4)
• Does not apply to investments that upon initial
recognition are designated as FVPL (use PAS 32 and
39)
 Effective date

• An entity shall apply this Standard for annual periods

beginning on or after 1 January 2013. Earlier
application is permitted.
• An associate is an entity over which the investor has
significant influence.
• 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.
• Subsidiary - an entity that is controlled by another entity.
(party controlled)
• Parent - the party controlling another entity
• 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

• If an entity holds, directly or indirectly (through

subsidiaries), twenty percent (20%) or more of the
voting power of the investee.
• Conversely, if the entity holds, directly or indirectly
(through subsidiaries), less than twenty percent (20%)
of the voting power of the investee, it is presumed that
the entity does not have significant influence, unless such
influence can be clearly demonstrated.
The existence of significant influence by an entity is usually
evidenced in one or more of the following ways:
• representation on the board of directors or equivalent
governing body of the investee;
• participation in policy-making processes, including
participation in decisions about dividends or other
distributions;
• material transactions between the entity and its investee;
• interchange of managerial personnel; or provision of
essential technical information
 Treatment of Potential Voting Rights

• The existence and effect of potential voting rights that

are currently exercisable or convertible, including
potential voting rights held by other entities, are
considered when assessing whether an entity has
significant influence.
• However when potential voting rights exist, the investor's
share of profit or loss of the investee and of changes
in the investee's equity is determined on the basis of
present ownership interest and does not reflect the
possible exercise or conversion of potential voting rights.
 An investor loses significant influence

• An entity loses significant influence over an investee

when it loses the power to participate in the financial
and operating policy decisions of that investee
• The loss of significant influence can occur with or
without a change in absolute or relative ownership
levels.
• It could also occur as a result of contractual agreement
 The equity method

• On initial recognition, the investment in an associate or

a joint venture is recognised at cost, and the carrying
amount is increased or decreased to recognise the
investor’s share of the profit or loss of the investee after
the date of acquisition and the investor’s share of the
investee’s profit or loss is recognised in the investor’s
profit or loss.
• distributions received from an investee reduce the carrying
amount of the investment.
 Distributions and other adjustments to carrying
amount

• adjustments to the carrying amount may also be

necessary for changes in the investor’s proportionate
interest in the investee arising from changes in the
investee’s other comprehensive income such as
changes arising from the revaluation of property, plant
and equipment and from foreign exchange translation
differences and the investor’s share of those changes is
recognised in the investor’s other comprehensive income.
• The share must be in ordinary shares.
 Classification as non-current asset

• An investment in an associate or a joint venture is

generally classified as non-current asset, unless it is
classified as held for sale in accordance with IFRS 5
Non-current Assets Held for Sale and Discontinued
Operations.
 Application of the equity method of accounting

• In its consolidated financial statements, an investor uses

the equity method of accounting for investments in
associates and joint ventures.
• the concepts underlying the procedures used in
accounting for the acquisition of a subsidiary are also
adopted in accounting for the acquisition of an investment
in an associate or a joint venture
 Exemptions from applying the equity method
A. The entity is a parent that is exempt from preparing
consolidated financial statements under the following:
• the entity is a wholly-owned subsidiary, or is a partially-
owned subsidiary of another entity and its other owners,
including those not otherwise entitled to vote, have been
informed about, and do not object to, the investor not
applying the equity method
• the investor or joint venturer's debt or equity instruments
are not traded in a public market
• the entity did not file, nor is it in the process of filing, its
financial statements with a securities commission or other
regulatory organisation for the purpose of issuing any
class of instruments in a public market, and
• the ultimate or any intermediate parent of the parent
produces financial statements available for public use that
comply with IFRSs, in which subsidiaries are consolidated
or are measured at fair value through profit or loss in
accordance with IFRS 10.
• B. When an investment in an associate or a joint venture
is held by, or is held indirectly through, an entity that is a
venture capital organisation, or a mutual fund, unit trust
and similar entities including investment-linked insurance
funds.
 Classification as held for sale

• When the investment, or portion of an investment, meets

the criteria to be classified as held for sale, the portion so
classified is accounted for in accordance with IFRS 5.
• Any remaining portion is accounted for using the
equity method until the time of disposal, at which time
the retained investment is accounted under IFRS 9,
unless the retained interest continues to be an associate
or joint venture.
 Discontinuing the equity method

Use of the equity method should cease from the date

that significant influence or joint control ceases:
• If the investment becomes a subsidiary, the entity
accounts for its investment in accordance with
IFRS 3 Business Combinations and IFRS 10
• If the retained interest is a financial asset, it is
measured at fair value and subsequently
accounted for under IFRS 9
• Any amounts recognised in other comprehensive income
in relation to the investment in the associate or joint
venture are accounted for on the same basis as if the
investee had directly disposed of the related assets or
liabilities (which may require reclassification to profit or
loss)
• If an investment in an associate becomes an investment
in a joint venture (or vice versa), the entity continues to
apply the equity method and does not remeasure the
retained interest.
 Changes in ownership interests

• If an entity's interest in an associate or joint venture is

reduced, but the equity method is continued to be applied,
the entity reclassifies to profit or loss the proportion
of the gain or loss previously recognised in other
comprehensive income relative to that reduction in
ownership interest.
• Transactions with associates or joint ventures. Profits and
losses resulting from upstream (associate to investor, or
joint venture to joint venturer) and downstream (investor
to associate, or joint venturer to joint venture) transactions
are eliminated to the extent of the investor's interest
in the associate or joint venture.
• Initial accounting. An investment is accounted for using
the equity method from the date on which it becomes
an associate or a joint venture.
• Date of financial statements. In applying the equity
method, the investor or joint venturer should use the
financial statements of the associate or joint venture as of
the same date as the financial statements of the
investor or joint venturer unless it is impracticable to do
so.
• Accounting policies. If the associate or joint venture uses
accounting policies that differ from those of the investor,
the associate or joint venture's financial statements
are adjusted to reflect the investor's accounting policies
for the purpose of applying the equity method
• Application of the equity method by a non-investment
entity investor to an investment entity investee. When
applying the equity method to an associate or a joint
venture, a non-investment entity investor in an
investment entity may retain the fair value
measurement applied by the associate or joint
venture to its interests in subsidiaries. The election is
made separately for each associate or joint venture.
 Impairment

After application of the equity method an entity has to

determine whether it is necessary to recognise any
additional impairment loss with respect to its net
investment in the associate or joint venture.
If impairment is indicated, the amount is calculated by
reference to IAS 36 Impairment of Assets.
 Separate financial statements

• An investment in an associate or a joint venture shall be

accounted for in the entity's separate financial statements
in accordance with IAS 27 Separate Financial Statements
(as amended in 2011).
 Disclosures

• There are no disclosures specified in IAS 28. Instead,

IFRS 12 Disclosure of Interests in Other Entities outlines
the disclosures required for entities with joint control of, or
significant influence over, an investee.