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Investment in Associate

The document provides information on accounting for investments in associates using the equity method under PAS 28. Key points include: - The equity method is used for investments that provide significant influence, generally between 20-50% ownership stake. - The investment is initially recognized at cost and adjusted subsequently for the investor's share of profit or loss and other comprehensive income of the associate. - Gains or losses on sale of the investment and impairment losses are also recognized. - If significant influence is lost, the investment is reclassified to fair value through profit or loss.

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78 views

Investment in Associate

The document provides information on accounting for investments in associates using the equity method under PAS 28. Key points include: - The equity method is used for investments that provide significant influence, generally between 20-50% ownership stake. - The investment is initially recognized at cost and adjusted subsequently for the investor's share of profit or loss and other comprehensive income of the associate. - Gains or losses on sale of the investment and impairment losses are also recognized. - If significant influence is lost, the investment is reclassified to fair value through profit or loss.

Uploaded by

Maricon Berja
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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INVESTMENT

IN
ASSOCIATE
INVESTMENT IN ASSOCIATE
Significant influence- power to PARTICIPATE

20% to 50%

EQUITY Method ( PAS 28 )


EQUITY METHOD ( PAS 28 )
Transaction cost Capitalized
Dividend CV of Investment

SNI/SNL/SOCI CV of Investment

Carrying value, BS Date CV less Impairment

Unrealized Gain/ Unrealized Loss ( UG/UL ) None

Amortization of Goodwill None

Gain or Loss on Sale Profit or Loss


OTHER COMPREHENSIVE INCOME
( OCI )
Changes in Revaluation Surplus

Changes in Fair Value of Investment @ FVOCI

Actuarial gain/loss on defined benefit plan

Gain or Loss on Translating the FS of a foreign operation

Effective Gain or Loss from CASH FLOW HEDGING


GOODWILL
COST XX

FAIR VALUE OF NET ASSETS ACQUIRED (XX)

GOODWILL ( COST > FVNA ) XX


Investment in Associate
Beginning Balance
Share in Adjusted Net Income Share in Adjusted Net Loss

Share in OCI-GAIN Share in OCI-LOSS

Cash Dividend

CV, BS Date before Impairment


Impairment loss ( CV > RV )

CV, BS Date after Impairment


Share in Adjusted Net Income/Loss
Share in Amortization of Excess FAIR VALUE over BOOK VALUE

Non-depreciable PPE None unless


SOLD

Depreciable PPE Depreciation Expense

Intangible Asset Amortization Expense

Inventory Cost of Goods Sold


40,000 / 160,000 = 25 % Initial Cost = 40,000 x 15 = 600,000

Share in Unadjusted net income = 25 % x 800,000 x 12/12 = 200,000

Share in OCI-LOSS = 25 % x 100,000 = 25,000

Cash dividend received = 25 % x 300,000 = 75,000


SHARE IN AMORTIZATION OF EXCESS FAIR VALUE OVER BOOK VALUE

Intangible asset = 50,000 / 5 x 12/12 = 10,000 x 25% = 2,500

Equipment = 160,000 / 8 x 12/12 = 20,000 x 25% = 5,000

Inventories = 20,000 x 100 % = 20,000 x 25% = 5,000

Share in ADJUSTED net income= 200,000 - 2,500 - 5,000 - 5,000 = 187,500


COST 600,000
FAIR VALUE OF NET ASSETS ACQUIRED (557,500)
GOODWILL ( COST > FVNA ) 42,500

FAIR VALUE OF NET ASSETS ACQUIRED = 2,000,000 + 50,000 + 160,000 + 20,000


= 2,230,000 x 25% = 557,500
Investment in Associate
Beginning Balance = 600,000
Share in OCI-LOSS = 25,000
Share in Adjusted Net Income = 187,500
Cash Dividend = 75,000

CV, 12/31/17 before Impairment = 687,500 Impairment loss ( CV > RV ) = 0

CV, 12/31/17 after Impairment = 687,500


Investment in Associate
Beginning Balance = 600,000
Share in OCI-LOSS = 25,000
Share in Adjusted Net Income = 187,500
Cash Dividend = 75,000

CV, 12/31/17 before Impairment = 687,500 Impairment loss ( CV > RV ) = 0

CV, 12/31/17 after Impairment = 687,500


ASSOCIATE WITH PREFERENCE SHARE
Share in Net Income = % x ( Net income - Preference dividend )
NOTE:
Cumulative = Deduct Pref. dividend whether declared or not
Non-Cumulative = Deduct Pref. dividend when declared only

Preference dividend (How much?)

Cumulative with declaration Annual dividend

Cumulative without declaration Annual dividend

Non-cumulative with declaration Dividend declared only

Non-cumulative without declaration None


Annual Dividend = 8% x 10M = 800,000
100,000 shares x P100 par value = 10,000,000 Annual Dividend = P8.00 x 100,000 shares = 800,000

Preference dividend SNI = % x ( NI - Preference Dividend )

Cumulative with declaration Annual dividend 25% x ( 3,000,000 - 800,000 ) = 550,000

Cumulative without declaration Annual dividend 25% x ( 3,000,000 - 800,000 ) = 550,000

Non-cumulative with declaration Dividend declared only 25% x ( 3,000,000 - 700,000 ) = 575,000

Non-cumulative without declaration None 25% x ( 3,000,000 - 0 ) = 750,000


CESSATION ( LOSS OF SIGNIFICANT INFLUENCE )
Use of EQUITY Method is NOT allowed
Reclassify remaining interests to FAIR VALUE INVESTMENT

Total FAIR VALUE of Investment (100%) XX


Total CARRYING VALUE of Investment (100%) ( XX )
Total CESSATION GAIN / LOSS (100%) XX Profit or Loss ( P/L )

% REALIZED ( SOLD ) = GAIN/ LOSS ON SALE % UNREALIZED ( RECLASSIFIED ) = GAIN/ LOSS


ON RECLASSIFICATION
Investment in Associate
Beginning Balance = 300,000 Share in OCI-LOSS = 20,000
( 20,000 x 15 ) ( 20% x 100,000 )
Share in Adjusted Net Income = 160,000
Cash Dividend = 60,000
( 20% x 800,000 x 12/12 )
( 20% x 300,000 )

CV, 12/31/17 = 380,000


Total FAIR VALUE of Investment ( 20,000 X 25 ) 500,000
Total CARRYING VALUE of Investment (380,000)
(400,000)
CESSATION GAIN BEFORE RECYCLING OF OCI 120,000
RECYCLING OF OCI-LOSS to P/L X
(20,000)
Total CESSATION GAIN ( P/L ) 100,000

-0- SHORTCUT METHOD: “ As if NO OCI at ALL”

400,000
SOLD (30%) RECLASSIFIED (70%)

Total FAIR VALUE of Investment 500,000 150,000 350,000


Total CARRYING VALUE of Investment (380,000) (114,000) (266,000)
CESSATION GAIN BEFORE RECYCLING OF OCI 120,000 36,000 84,000
RECYCLING OF OCI-LOSS (20,000) (6,000) (14,000)
Total CESSATION GAIN ( P/L ) 100,000 30,000 70,000

REALIZED ( SOLD ) = GAIN/ LOSS ON SALE UNREALIZED ( RECLASSIFIED ) = GAIN/ LOSS ON


( 30 % ) = 30,000 RECLASSIFICATION ( 70 % ) = 70,000
RECLASSIFIED TO FVPL FVOCI
GAIN/LOSS ON SALE P/L P/L
GAIN/LOSS ON RECLASSIFICATION P/L P/L
DIVIDEND INCOME P/L P/L
UNREALIZED GAIN / UNREALIZED LOSS P/L OCI

DIVIDEND INCOME = 200,000 x 14 % = 28,000


NOTE:
UG/UL = 25 - 22 x 14,000 shares = 42,000 ( UL )
FVPL FVOCI

GAIN ON SALE 30,000 P/L 30,000 P/L

GAIN ON RECLASSIFICATION 70,000 P/L 70,000 P/L

DIVIDEND INCOME 28,000 P/L 28,000 P/L

UNREALIZED LOSS ( 42,000 ) P/L (42,000) OCI

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