International Accounting Standard 28 Investments in Associates and Joint Ventures (IAS 28) is set out in paragraphs 1–47. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 28 should be read in the context of its objective and the Basis for Conclusions, the Preface to IFRS Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance. [Refer:IAS 8 paragraphs 10–12]
1 | The objective of this Standard is to prescribe the accounting for investments in associates and to set out the requirements for the application of the equity method [Refer:paragraphs 10–39] when accounting for investments in associates and joint ventures. [Refer:
paragraphs 40–43 for the requirements for impairment testing after applying the equity method Basis for Conclusions paragraphs BC51–BC55 and IFRS 12 for disclosure requirements for entities with an interest in a joint venture and/or an associate] [Note:An entity applies IFRS 11 to determine the type of joint arrangement in which it is involved. Once it has determined that it has an interest in a joint venture, the entity recognises an investment and accounts for it using the equity method in accordance with IAS 28, unless the entity is exempted from applying the equity method as specified in IAS 28.]
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2 | This Standard shall be applied by all entities that are investors with joint control [Refer:IFRS 11 paragraphs 7–13] of, or significant influence [Refer:paragraphs 3 and 5–9] over, an investee. |
3 | The following terms are used in this Standard with the meanings specified: An associate is an entity over which the investor has significant influence. Consolidated financial statements are the financial statements of a group in which assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity. The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets. The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s other comprehensive income includes its share of the investee’s other comprehensive income. 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. [Refer:IFRS 11 paragraphs 7–13 and B5–B11] 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 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. [Refer:paragraphs 5–9] |
4 | The following terms are defined in paragraph 4 of IAS 27 Separate Financial Statements and in Appendix A of IFRS 10 Consolidated Financial Statements and are used in this Standard with the meanings specified in the IFRSs in which they are defined:
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| E1 | [IFRIC® Update, March 2017, Agenda Decision, ‘IAS 28 Investments in Associates and Joint Ventures—Fund manager’s assessment of significant influence’ The Committee received a request to clarify whether a fund manager assesses significant influence over a fund that it manages and in which it has an investment, and, if so, how it makes this assessment. In the scenario described in the submission, the fund manager applies IFRS 10 Consolidated Financial Statements and determines that it is an agent and thus does not control the fund. The fund manager has also concluded that it does not have joint control of the fund. The Committee observed that a fund manager assesses whether it has control, joint control or significant influence over a fund that it manages applying the relevant IFRS Standard, which in the case of significant influence is IAS 28. The Committee noted that, unlike IFRS 10 in the assessment of control, IAS 28 does not address decision-making authority held in the capacity of an agent in the assessment of significant influence. When it issued IFRS 10, the Board did not change the definition of significant influence, nor any requirements on how to assess significant influence in IAS 28. The Committee concluded that requirements relating to decision-making authority held in the capacity of an agent could not be developed separately from a comprehensive review of the definition of significant influence in IAS 28. In addition, the Committee observed that paragraph 7(b) of IFRS 12 Disclosure of Interests in Other Entities requires an entity to disclose information about significant judgements and assumptions it has made in determining that it has significant influence over another entity. The examples in paragraph 9 of IFRS 12 clarify that the requirement in paragraph 7(b) of IFRS 12 applies both when an entity has determined that it has significant influence over another entity and when it has determined that it does not. The Committee concluded that it would be unable to resolve the question asked efficiently within the confines of existing IFRS Standards. Consequently, it decided not to add this matter to its standard-setting agenda.] |
5 | If an entity holds, directly or indirectly (eg through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the entity has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the entity holds, directly or indirectly (eg through subsidiaries), less than 20 per cent 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. A substantial or majority ownership by another investor does not necessarily preclude an entity from having significant influence. |
6 | The existence of significant influence by an entity is usually evidenced in one or more of the following ways:
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7 | An entity may own share warrants, share call options, debt or equity instruments that are convertible into ordinary shares, or other similar instruments that have the potential, if exercised or converted, to give the entity additional voting power or to reduce another party’s voting power over the financial and operating policies of another entity (ie potential voting rights). [Refer:Basis for Conclusions paragraphs BC15 and BC16] 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. Potential voting rights are not currently exercisable or convertible when, for example, they cannot be exercised or converted until a future date or until the occurrence of a future event. |
8 | In assessing whether potential voting rights contribute to significant influence, the entity examines all facts and circumstances (including the terms of exercise of the potential voting rights and any other contractual arrangements whether considered individually or in combination) that affect potential rights, except the intentions of management and the financial ability to exercise or convert those potential rights. |
9 | 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 occur, for example, when an associate becomes subject to the control of a government, court, administrator or regulator. It could also occur as a result of a contractual arrangement. |
10 | Under 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.E2,E3 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. 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 changes include those arising from the revaluation of property, plant and equipment [Refer:IAS 16 paragraphs 39 and 40] and from foreign exchange translation differences [Refer:IAS 21 paragraphs 27, 30–32, 37, 39 and 45]. The investor’s share of those changes is recognised in the investor’s other comprehensive income (see IAS 1 Presentation of Financial Statements). |
| E2 | [IFRIC® Update, July 2009, Agenda Decision, ‘IAS 28 Investments in Associates—Potential effect of IFRS 3 Business Combinations (as revised in 2008) and IAS 27 Consolidated and Separate Financial Statements (as amended in 2008) on equity method accounting’ The IFRIC staff noted that the FASB’s Emerging Issues Task Force (EITF) had added to its agenda EITF Issue No. 08-6 Equity Method Investment Accounting Considerations. EITF 08-6 addresses several issues resulting from the joint project by the IASB and FASB on accounting for business combinations and accounting and reporting for non-controlling interest that culminated in the issue of IFRS 3 (as revised in 2008) and IAS 27 (as amended in 2008) and SFAS 141(R) and SFAS 160. At its meeting in May 2009, the IFRIC deliberated two of the issues considered in EITF 08-6:
The IFRIC noted that IFRSs consistently require assets not measured at fair value through profit or loss to be measured at initial recognition at cost. Generally stated, cost includes the purchase price and other costs directly attributable to the acquisition or issuance of the asset such as professional fees for legal services, transfer taxes and other transaction costs. Therefore, the cost of an investment in an associate at initial recognition determined in accordance with paragraph 11 of IAS 28 [The equivalent requirement is now in paragraph 10] comprises its purchase price and any directly attributable expenditures necessary to obtain it. ... The IFRIC concluded that the agenda criteria were not met mainly because, given the guidance in IFRSs, it did not expect divergent interpretations in practice. Therefore, the IFRIC decided not to add these issues to its agenda.] |
| E3 | [IFRIC® Update, January 2019, Agenda Decision, ‘IAS 27 Separate Financial Statements—Investment in a subsidiary accounted for at cost: Step acquisition’ The Committee received a request about how an entity applies the requirements in IAS 27 to a fact pattern involving an investment in a subsidiary. In the fact pattern described in the request, the entity preparing separate financial statements:
The request asked:
Question A IAS 27 does not define ‘cost’, nor does it specify how an entity determines the cost of an investment acquired in stages. The Committee noted that cost is defined in other IFRS Standards (for example, paragraph 6 of IAS 16 Property Plant and Equipment, paragraph 8 of IAS 38 Intangible Assets and paragraph 5 of IAS 40 Investment Property). The Committee observed that the two approaches outlined in the request arise from different views of whether the step acquisition transaction involves:
Based on its analysis, the Committee concluded that a reasonable reading of the requirements in IFRS Standards could result in the application of either one of the two approaches outlined in this agenda decision (ie fair value as deemed cost approach or accumulated cost approach). The Committee observed that an entity would apply its reading of the requirements consistently to step acquisition transactions. An entity would also disclose the selected approach applying paragraphs 117–124 of IAS 1 Presentation of Financial Statements if that disclosure would assist users of financial statements in understanding how step acquisition transactions are reflected in reporting financial performance and financial position. ... For Question A, the Committee considered whether to develop a narrow-scope amendment to address how an entity determines the cost of an investment acquired in stages. The Committee observed that:
On balance, the Committee decided not to undertake standard-setting to address Question A. ... Consequently, the Committee decided not to add these matters to its standard-setting agenda. [The full text of the agenda decision is reproduced after paragraph 10(a) of IAS 27.]] |
11 | The recognition of income on the basis of distributions received may not be an adequate measure of the income earned by an investor on an investment in an associate or a joint venture because the distributions received may bear little relation to the performance of the associate or joint venture. Because the investor has joint control of, or significant influence over, the investee, the investor has an interest in the associate’s or joint venture’s performance and, as a result, the return on its investment. The investor accounts for this interest by extending the scope of its financial statements to include its share of the profit or loss of such an investee. As a result, application of the equity method provides more informative reporting of the investor’s net assets and profit or loss. |
12 | When potential voting rights or other derivatives containing potential voting rights exist, an entity’s interest in an associate or a joint venture is determined solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights and other derivative instruments, unless paragraph 13 applies. |
13 | In some circumstances, an entity has, in substance, an existing ownership as a result of a transaction that currently gives it access to the returns associated with an ownership interest. In such circumstances, the proportion allocated to the entity is determined by taking into account the eventual exercise of those potential voting rights and other derivative instruments that currently give the entity access to the returns. |
14 | IFRS 9 Financial Instruments does not apply to interests in associates and joint ventures that are accounted for using the equity method. When instruments containing potential voting rights in substance currently give access to the returns associated with an ownership interest in an associate or a joint venture, the instruments are not subject to IFRS 9. In all other cases, instruments containing potential voting rights in an associate or a joint venture are accounted for in accordance with IFRS 9. |
14A | An entity also applies IFRS 9 to other financial instruments in an associate or joint venture to which the equity method is not applied. [Refer:IFRS 9 paragraph 2.1(a)] These include long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture (see paragraph 38). An entity applies IFRS 9 to such long-term interests before it applies paragraph 38 and paragraphs 40–43 of this Standard. In applying IFRS 9, the entity does not take account of any adjustments to the carrying amount of long-term interests that arise from applying this Standard. |
15 | Unless an investment, or a portion of an investment, in an associate or a joint venture is classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, [Refer:IFRS 5 paragraphs 6–14] the investment, or any retained interest in the investment not classified as held for sale, shall be classified as a non-current asset. |
| E4 | [IFRIC® Update, March 2009, Agenda Decision, ‘IAS 28 Investments in Associates—Potential effect of IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements (as amended in 2008) on equity method accounting’ The IFRIC staff noted that the FASB’s Emerging Issues Task Force (EITF) recently added to its agenda, EITF Issue No. 08‑6 Equity Method Investment Accounting Considerations. EITF 08‑6 addressed several issues resulting from the recently concluded joint project by the IASB and FASB on accounting for business combinations and accounting and reporting for non-controlling interests that culminated in the issue of IFRS 3 (as revised in 2008) and IAS 27 (as amended in 2008) and FASB SFAS 141(R) and SFAS 160. The IFRIC noted that IAS 28 provides explicit guidance on two issues:
Therefore, the IFRIC did not expect divergence in practice and decided not to add these issues to its agenda.] |
16 | An entity with joint control of, or significant influence over, an investee shall account for its investment in an associate or a joint venture using the equity method except when that investment qualifies for exemption in accordance with paragraphs 17–19. |
17 | An entity need not apply the equity method to its investment in an associate or a joint venture if the entity is a parent that is exempt from preparing consolidated financial statements by the scope exception in paragraph 4(a) of IFRS 10 or if all the following apply:
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18 | 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, the entity may elect to measure that investment at fair value through profit or loss in accordance with IFRS 9. An example of an investment-linked insurance fund is a fund held by an entity as the underlying items for a group of insurance contracts with direct participation features. For the purposes of this election, insurance contracts include investment contracts with discretionary participation features. An entity shall make this election separately for each associate or joint venture, at initial recognition of the associate or joint venture. [Refer:Basis for Conclusions paragraphs BC19B–BC19D] (See IFRS 17 Insurance Contracts for terms used in this paragraph that are defined in that Standard.) |
19 | When an entity has an investment in an associate, a portion of which is held indirectly through a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure that portion of the investment in the associate at fair value through profit or loss in accordance with IFRS 9 regardless of whether the venture capital organisation, or the mutual fund, unit trust and similar entities including investment-linked insurance funds, has significant influence over that portion of the investment. If the entity makes that election, the entity shall apply the equity method to any remaining portion of its investment in an associate that is not held through a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds. |
20 | An entity shall apply IFRS 5 to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. [Refer:IFRS 5 paragraphs 6–14] Any retained portion of an investment in an associate or a joint venture that has not been classified as held for sale shall be accounted for using the equity method until disposal of the portion that is classified as held for sale takes place. After the disposal takes place, an entity shall account for any retained interest in the associate or joint venture in accordance with IFRS 9 unless the retained interest continues to be an associate or a joint venture, in which case the entity uses the equity method. |
21 | When an investment, or a portion of an investment, in an associate or a joint venture previously classified as held for sale no longer meets the criteria to be so classified, it shall be accounted for using the equity method retrospectively as from the date of its classification as held for sale. Financial statements for the periods since classification as held for sale shall be amended accordingly. |
22 | An entity shall discontinue the use of the equity method from the date when its investment ceases to be an associate or a joint venture as follows:
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23 | Therefore, if a gain or loss previously recognised in other comprehensive income by the investee would be reclassified to profit or loss on the disposal of the related assets or liabilities, the entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. For example, if an associate or a joint venture has cumulative exchange differences relating to a foreign operation and the entity discontinues the use of the equity method, the entity shall reclassify to profit or loss the gain or loss that had previously been recognised in other comprehensive income in relation to the foreign operation. |
24 | If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the entity continues to apply the equity method and does not remeasure the retained interest. |
25 | If an entity’s ownership interest in an associate or a joint venture is reduced, but the investment continues to be classified either as an associate or a joint venture respectively, the entity shall reclassify to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be required to be reclassified to profit or loss on the disposal of the related assets or liabilities.E5 |
| E5 | [IFRIC® Update, July 2009, Agenda Decision, ‘IAS 28 Investments in Associates—Potential effect of IFRS 3 Business Combinations (as revised in 2008) and IAS 27 Consolidated and Separate Financial Statements (as amended in 2008) on equity method accounting’ The IFRIC staff noted that the FASB’s Emerging Issues Task Force (EITF) had added to its agenda EITF Issue No. 08-6 Equity Method Investment Accounting Considerations. EITF 08-6 addresses several issues resulting from the joint project by the IASB and FASB on accounting for business combinations and accounting and reporting for non-controlling interest that culminated in the issue of IFRS 3 (as revised in 2008) and IAS 27 (as amended in 2008) and SFAS 141(R) and SFAS 160. At its meeting in May 2009, the IFRIC deliberated two of the issues considered in EITF 08-6:
... The IFRIC noted that paragraph 19A of IAS 28 [The equivalent requirement is now in paragraph 25] provides guidance on the accounting for amounts recognised in other comprehensive income when the investor’s ownership interest is reduced, but the entity retains significant influence. The IFRIC noted that there is no specific guidance on the recognition of a gain or loss resulting from a reduction in the investor’s ownership interest resulting from the issue of shares by the associate. However, the IFRIC also noted that reclassification of amounts to profit or loss from other comprehensive income is generally required as part of determining the gain or loss on a disposal. Paragraph 19A of IAS 28 applies to all reductions in the investor’s ownership interest, no matter the cause. The IFRIC concluded that the agenda criteria were not met mainly because, given the guidance in IFRSs, it did not expect divergent interpretations in practice. Therefore, the IFRIC decided not to add these issues to its agenda.] |
26 | Many of the procedures that are appropriate for the application of the equity method are similar to the consolidation procedures described in IFRS 10. Furthermore, 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.E6, E7 |
| E6 | [IFRIC® Update, August 2002, Agenda Decision, ‘IAS 28 Investments in Associates and Joint Ventures—Reciprocal equity interests’ When A owns an interest in B, and B concurrently owns an interest in A, those investments are known as reciprocal interests (or ‘cross-holdings’). The issue is what is the accounting for reciprocal interests when Entity A and Entity B account for their investments in one another using the equity method as defined in IAS 28 Accounting for Investments in Associates and Joint Ventures. The IFRIC agreed not to require publication of an Interpretation on this issue. IAS 28 paragraph 16 [the equivalent requirement is now in paragraph 26] states, “Many of the procedures appropriate for the application of the equity method are similar to the consolidation procedures set out in IAS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries [now in IFRS 10 Consolidated Financial Statements]”. Like the consolidation procedures applied when a subsidiary is consolidated, the equity method requires reciprocal interests to be eliminated. The IFRIC also agreed to provide examples of reciprocal interests to the Board as input into the IAS 28 Improvements project.] |
| E7 | [IFRIC® Update, April 2003, Agenda Decision, ‘IAS 28 Investments in Associates and Joint Ventures—Reciprocal interests’ This issue addressed the accounting of a parent’s (or investor’s) shares that are held by a subsidiary (or associate). The IFRIC decided to wait until the amendments to improve IAS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries are finalised from the Business Combinations Phase II project before considering whether to take this issue on to the agenda.] |
27 | A group’s share in an associate or a joint venture is the aggregate of the holdings in that associate or joint venture by the parent and its subsidiaries. The holdings of the group’s other associates or joint ventures are ignored for this purpose. When an associate or a joint venture has subsidiaries, associates or joint ventures, the profit or loss, other comprehensive income and net assets taken into account in applying the equity method are those recognised in the associate’s or joint venture’s financial statements (including the associate’s or joint venture’s share of the profit or loss, other comprehensive income and net assets of its associates and joint ventures), after any adjustments necessary to give effect to uniform accounting policies (see paragraphs 35–36A). |
28 | Gains and losses resulting from ‘upstream’ and ‘downstream’ transactions involving assets that do not constitute a business, as defined in IFRS 3, between an entity (including its consolidated subsidiaries) and its associate or joint venture are recognised in the entity’s financial statements only to the extent of unrelated [Refer:Question C of the January 2018 Agenda Decision, ‘Contributing property, plant and equipment to an associate (IAS 28 Investments in Associates and Joint Ventures)’ which is reproduced after paragraph 30 of IAS 28.] investors’ interests in the associate or joint venture. ‘Upstream’ transactions are, for example, sales of assets from an associate or a joint venture to the investor. The entity’s share in the associate’s or the joint venture’s gains or losses resulting from these transactions is eliminated. [Refer:Basis for Conclusions paragraph BC37H] ‘Downstream’ transactions are, for example, sales or contributions of assets from the investor to its associate or its joint venture. [Refer:Basis for Conclusions paragraph BC37J and IFRS 10 Basis for Conclusions paragraphs BC190L–BC190O for deferral of effective date]
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29 | When downstream transactions provide evidence of a reduction in the net realisable value of the assets to be sold or contributed, or of an impairment loss of those assets, those losses shall be recognised in full by the investor. When upstream transactions provide evidence of a reduction in the net realisable value of the assets to be purchased or of an impairment loss of those assets, the investor shall recognise its share in those losses. |
30 | The gain or loss resulting from the contribution of non-monetary assets that do not constitute a business, as defined in IFRS 3, to an associate or a joint venture in exchange for an equity interest in that associate or joint venture shall be accounted for in accordance with paragraph 28,E8 [Refer:Basis for Conclusions paragraphs BC37F–BC37H] except when the contribution lacks commercial substance, as that term is described in IAS 16 Property, Plant and Equipment. If such a contribution lacks commercial substance, the gain or loss is regarded as unrealised and is not recognised unless paragraph 31 also applies. Such unrealised gains and losses shall be eliminated against the investment accounted for using the equity method and shall not be presented as deferred gains or losses in the entity’s consolidated statement of financial position or in the entity’s statement of financial position in which investments are accounted for using the equity method. |
| E8 | [IFRIC® Update, January 2018, Agenda Decision, ‘Contributing property, plant and equipment to an associate (IAS 28 Investments in Associates and Joint Ventures)’ The Committee received a request about how an entity accounts for a transaction in which it contributes property, plant and equipment (PPE) to a newly formed associate in exchange for shares in the associate. In the fact pattern described in the request:
The request asked:
In analysing the request, the Committee assumed the contribution of PPE to the associate has commercial substance as described in paragraph 25 of IAS 16 Property, Plant and Equipment. Question A Paragraph 7 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires an entity to apply an IFRS Standard to a transaction when that Standard applies specifically to the transaction. The Committee observed, therefore, that unless a Standard specifically excludes common control transactions from its scope, an entity applies the applicable requirements in the Standard to common control transactions. Question B Paragraph 28 of IAS 28 requires an entity to recognise gains and losses resulting from upstream and downstream transactions with an associate only to the extent of unrelated investors’ interests in the associate. Paragraph 28 includes as an example of a downstream transaction the contribution of assets from an entity to its associate. The Committee observed that the term ‘unrelated investors’ in paragraph 28 of IAS 28 refers to investors other than the entity (including its consolidated subsidiaries)—ie the word ‘unrelated’ does not mean the opposite of ‘related’ as it is used in the definition of a related party in IAS 24 Related Party Disclosures. This is consistent with the premise that financial statements are prepared from the perspective of the reporting entity, which in the fact pattern described in the request is each of the investors. Accordingly, the Committee concluded that an entity recognises any gain or loss on contributing PPE to an associate to the extent of other investors’ interests in the associate. Question C This question has an effect only if the fair value of the PPE contributed differs from the fair value of the equity interest in the associate received in exchange for that PPE. The Committee observed that in the fact pattern described in the request, it would generally expect the fair value of PPE contributed to be the same as the fair value of the equity interest in the associate that an entity receives in exchange. If there is initially any indication that the fair value of the PPE contributed might differ from the fair value of the acquired equity interest, the investor first assesses the reasons for this difference and reviews the procedures and assumptions it has used to determine fair value. The Committee observed that applying the requirements in IFRS Standards, an entity recognises a gain or loss on contributing PPE and a carrying amount for the investment in the associate that reflects the determination of those amounts based on the fair value of the PPE contributed—unless the transaction provides objective evidence that the entity’s interest in the associate might be impaired. If this is the case, the investor also considers the impairment requirements in IAS 36 Impairment of Assets. If, having reviewed the procedures and assumptions used to determine fair value, the fair value of the PPE is more than the fair value of the acquired interest in the associate, this would provide objective evidence that the entity’s interest in the associate might be impaired. For all three questions, the Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis for an entity to account for the contribution of PPE to an associate in the fact pattern described in the request. Consequently, the Committee decided not to add this matter to its standard-setting agenda.] |
31 | If, in addition to receiving an equity interest in an associate or a joint venture, an entity receives monetary or non-monetary assets, the entity recognises in full in profit or loss the portion of the gain or loss on the non-monetary contribution relating to the monetary or non-monetary assets received. |
31A | The gain or loss resulting from a downstream transaction involving assets that constitute a business, as defined in IFRS 3, between an entity (including its consolidated subsidiaries) and its associate or joint venture is recognised in full in the investor’s financial statements. [Refer:Basis for Conclusions paragraphs BC37A–BC37E and, for deferral of effective date, paragraph BC37J and IFRS 10 Basis for Conclusions paragraphs BC190L–BC190O]
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31B | An entity might sell or contribute assets in two or more arrangements (transactions). When determining whether assets that are sold or contributed constitute a business, as defined in IFRS 3, an entity shall consider whether the sale or contribution of those assets is part of multiple arrangements that should be accounted for as a single transaction in accordance with the requirements in paragraph B97 of IFRS 10. [Refer:Basis for Conclusions paragraph BC37J and IFRS 10 Basis for Conclusions paragraphs BC190L–BC190O for deferral of effective date]
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32 | An investment is accounted for using the equity method from the date on which it becomes an associate or a joint venture. On acquisition of the investment, any difference between the cost of the investment and the entity’s share of the net fair value [Refer:IFRS 13] of the investee’s identifiable assets and liabilities is accounted for as follows:
Appropriate adjustments to the entity’s share of the associate’s or joint venture’s profit or loss after acquisition are made in order to account, for example, for depreciation of the depreciable assets based on their fair values at the acquisition date. Similarly, appropriate adjustments to the entity’s share of the associate’s or joint venture’s profit or loss after acquisition are made for impairment losses such as for goodwill or property, plant and equipment. |
33 | The most recent available financial statements of the associate or joint venture are used by the entity in applying the equity method. When the end of the reporting period of the entity is different from that of the associate or joint venture, the associate or joint venture prepares, for the use of the entity, financial statements as of the same date as the financial statements of the entity unless it is impracticable to do so. |
34 | When, in accordance with paragraph 33, the financial statements of an associate or a joint venture used in applying the equity method are prepared as of a date different from that used by the entity, adjustments shall be made for the effects of significant transactions or events that occur between that date and the date of the entity’s financial statements. In any case, the difference between the end of the reporting period of the associate or joint venture and that of the entity shall be no more than three months. The length of the reporting periods and any difference between the ends of the reporting periods shall be the same from period to period. |
35 | The entity’s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances. |
36 | Except as described in paragraph 36A, if an associate or a joint venture uses accounting policies other than those of the entity for like transactions and events in similar circumstances, adjustments shall be made to make the associate’s or joint venture’s accounting policies conform to those of the entity when the associate’s or joint venture’s financial statements are used by the entity in applying the equity method. |
36A | Notwithstanding the requirement in paragraph 36, if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries. [Refer:Basis for Conclusions paragraphs BC46A–BC46G] This election is made separately for each investment entity associate or joint venture, at the later of the date on which (a) the investment entity associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture first becomes a parent. [Refer:Basis for Conclusions paragraph BC19E] |
37 | If an associate or a joint venture has outstanding cumulative preference shares that are held by parties other than the entity and are classified as equity, the entity computes its share of profit or loss after adjusting for the dividends on such shares, whether or not the dividends have been declared. |
38 | If an entity’s share of losses of an associate or a joint venture equals or exceeds its interest in the associate or joint venture, the entity discontinues recognising its share of further losses. The interest in an associate or a joint venture is the carrying amount of the investment in the associate or joint venture determined using the equity method together with any long-term interests that, in substance, form part of the entity’s net investment in the associate or joint venture. For example, an item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, an extension of the entity’s investment in that associate or joint venture. Such items may include preference shares and long-term receivables or loans, but do not include trade receivables, trade payables or any long-term receivables for which adequate collateral exists, such as secured loans. [Refer:paragraph 14A] Losses recognised using the equity method in excess of the entity’s investment in ordinary shares are applied to the other components of the entity’s interest in an associate or a joint venture in the reverse order of their seniority (ie priority in liquidation). |
39 | After the entity’s interest is reduced to zero, additional losses are provided for, and a liability is recognised, only to the extent that the entity has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. If the associate or joint venture subsequently reports profits, the entity resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. |
40 | After application of the equity method, including recognising the associate’s or joint venture’s losses in accordance with paragraph 38, the entity applies paragraphs 41A–41C to determine whether there is any objective evidence that its net investment in the associate or joint venture is impaired. |
41 | [Deleted] |
41A | The net investment in an associate or joint venture is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the net investment (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows from the net investment that can be reliably estimated. It may not be possible to identify a single, discrete event that caused the impairment. Rather the combined effect of several events may have caused the impairment. Losses expected as a result of future events, no matter how likely, are not recognised. Objective evidence that the net investment is impaired includes observable data that comes to the attention of the entity about the following loss events:
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41B | The disappearance of an active market because the associate’s or joint venture’s equity or financial instruments are no longer publicly traded is not evidence of impairment. A downgrade of an associate’s or joint venture’s credit rating or a decline in the fair value of the associate or joint venture, is not of itself, evidence of impairment, although it may be evidence of impairment when considered with other available information. |
41C | In addition to the types of events in paragraph 41A, objective evidence of impairment for the net investment in the equity instruments of the associate or joint venture includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the associate or joint venture operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment.E9,E10 |
| E9 | [IFRIC® Update, June 2005, Agenda Decision, ‘IAS 39 Financial Instruments: Recognition and Measurement— Impairment of an Equity Security’ [Paragraphs 41A–41C were added to IAS 28 as a consequential amendment when the Board issued IFRS 9. The requirements in paragraphs 41A-41C are similar to those in paragraphs 59–61 of IAS 39.] The IFRIC considered whether to develop guidance on how to determine whether under paragraph 61 of IAS 39 (as revised in March 2004) [now paragraph 41C of IAS 28] there has been a ‘significant or prolonged decline’ in the fair value of an equity instrument below its cost in the situation when an impairment loss has previously been recognised for an investment classified as available for sale. The IFRIC decided not to develop any guidance on this issue. The IFRIC noted that IAS 39 referred to original cost on initial recognition and did not regard a prior impairment as having established a new cost basis. The IFRIC also noted that IAS 39 Implementation Guidance E.4.9 states that further declines in value after an impairment loss is recognised in profit or loss are also recognised in profit or loss. Therefore, for an equity instrument for which a prior impairment loss has been recognised, ‘significant’ should be evaluated against the original cost at initial recognition and ‘prolonged’ should be evaluated against the period in which the fair value of the investment has been below original cost at initial recognition. The IFRIC was of the view that IAS 39 is clear on these points when all of the evidence in the requirements and the implementation guidance of IAS 39 are viewed together.] |
| E10 | [IFRIC® Update, July 2009, Agenda Decision, ‘IAS 39 Financial Instruments: Recognition and Measurement—Meaning of "significant or prolonged"’ [Paragraphs 41A–41C were added to IAS 28 as a consequential amendment when the Board issued IFRS 9. The requirements in paragraphs 41A-41C are similar to those in paragraphs 59–61 of IAS 39.] The IFRIC received a request to provide guidance on the meaning of ‘significant or prolonged’ (as described in paragraph 61 [now paragraph 41C of IAS 28]) in recognising impairment on available-for-sale equity instruments in accordance with IAS 39. The IFRIC agreed with the submission that significant diversity exists in practice on this issue. The IFRIC concluded that some of this diversity is the result of differing ways the requirements of IAS 39 are being implemented, some of which were identified in the submission. The IFRIC noted some applications in particular that are not in accordance with the requirements of IAS 39. For example:
The IFRIC noted that the applications that are not in accordance with the requirements of IAS 39 it discussed were examples only and were unlikely to be an exhaustive list of all the inconsistencies with the standard that might exist in practice. The IFRIC also noted that the determination of what constitutes a significant or prolonged decline is a matter of fact that requires the application of judgement. The IFRIC noted that this is true even though an entity may develop internal guidance to assist it in applying that judgement consistently. The IFRIC further noted that an entity would provide disclosure about the judgements it made in determining the existence of objective evidence and the amounts of impairment in accordance with paragraphs 122 and 123 of IAS 1 Presentation of Financial Statements and paragraph 20 of IFRS 7 Financial Instruments: Disclosures [IFRS 7 is not applicable to interests in associates and joint ventures accounted for in accordance with IAS 28]. Although the IFRIC recognised that significant diversity exists in practice, it noted that the Board has accelerated its project to develop a replacement for IAS 39 and expects to issue a new standard soon. Therefore, the IFRIC decided not to add this issue to its agenda.] |
42 | Because goodwill [Refer:paragraph 32] that forms part of the carrying amount of the net investment in an associate or a joint venture is not separately recognised, it is not tested for impairment separately by applying the requirements for impairment testing goodwill in IAS 36 Impairment of Assets. Instead, the entire carrying amount of the investment is tested for impairment in accordance with IAS 36 as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount whenever application of paragraphs 41A–41C indicates that the net investment may be impaired. An impairment loss recognised in those circumstances is not allocated to any asset, including goodwill, that forms part of the carrying amount of the net investment in the associate or joint venture. [Refer:Basis for Conclusions paragraphs BCZ42–BCZ45] Accordingly, any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the net investment subsequently increases. [Refer:Basis for Conclusions paragraph BCZ46] In determining the value in use of the net investment, an entity estimates:
Using appropriate assumptions, both methods give the same result. |
43 | The recoverable amount of an investment in an associate or a joint venture shall be assessed for each associate or joint venture, unless the associate or joint venture does not generate cash inflows from continuing use that are largely independent of those from other assets of the entity. |
44 | An investment in an associate or a joint venture shall be accounted for in the entity’s separate financial statements in accordance with paragraph 10 of IAS 27 (as amended in 2011). |
45 | An entity shall apply this Standard for annual periods beginning on or after 1 January 2013. Earlier application is permitted. If an entity applies this Standard earlier, it shall disclose that fact and apply IFRS 10, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities and IAS 27 (as amended in 2011) at the same time. |
45A | IFRS 9, as issued in July 2014, amended paragraphs 40–42 and added paragraphs 41A–41C. An entity shall apply those amendments when it applies IFRS 9. |
45B | Equity Method in Separate Financial Statements (Amendments to IAS 27), issued in August 2014, amended paragraph 25. An entity shall apply that amendment for annual periods beginning on or after 1 January 2016 retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors [Refer:IAS 8 paragraph 5 (definition of retrospective application) and paragraphs 19–27]. Earlier application is permitted. If an entity applies that amendment for an earlier period, it shall disclose that fact. |
45C | Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28), issued in September 2014, amended paragraphs 28 and 30 and added paragraphs 31A–31B. An entity shall apply those amendments prospectively to the sale or contribution of assets occurring in annual periods beginning on or after a date to be determined by the IASB. Earlier application is permitted. If an entity applies those amendments earlier, it shall disclose that fact. |
45D | Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28), issued in December 2014, amended paragraphs 17, 27 and 36 and added paragraph 36A. An entity shall apply those amendments for annual periods beginning on or after 1 January 2016. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact. |
45E | Annual Improvements to IFRS Standards 2014–2016 Cycle, issued in December 2016, amended paragraphs 18 and 36A. An entity shall apply those amendments retrospectively in accordance with IAS 8 [Refer:IAS 8 paragraph 5 (definition of retrospective application) and paragraphs 19–27] for annual periods beginning on or after 1 January 2018. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact. |
45F | IFRS 17, issued in May 2017, amended paragraph 18. An entity shall apply that amendment when it applies IFRS 17. |
45G | Long-term Interests in Associates and Joint Ventures, issued in October 2017, added paragraph 14A and deleted paragraph 41. An entity shall apply those amendments retrospectively in accordance with IAS 8 [Refer:IAS 8 paragraph 22] for annual reporting periods beginning on or after 1 January 2019, except as specified in paragraphs 45H–45K. Earlier application is permitted. If an entity applies those amendments earlier, it shall disclose that fact. |
45H | An entity that first applies the amendments in paragraph 45G at the same time it first applies IFRS 9 shall apply the transition requirements in IFRS 9 to the long-term interests described in paragraph 14A. |
45I | An entity that first applies the amendments in paragraph 45G after it first applies IFRS 9 shall apply the transition requirements in IFRS 9 necessary for applying the requirements set out in paragraph 14A to long-term interests. For that purpose, references to the date of initial application in IFRS 9 [Refer:IFRS 9 paragraph 7.2.2] shall be read as referring to the beginning of the annual reporting period in which the entity first applies the amendments (the date of initial application of the amendments). [Refer:Basis for Conclusions paragraphs BC16J and BC16K] The entity is not required to restate prior periods to reflect the application of the amendments. The entity may restate prior periods only if it is possible without the use of hindsight. [Refer:IAS 8 paragraphs 52 and 53] |
45J | When first applying the amendments in paragraph 45G, an entity that applies the temporary exemption from IFRS 9 in accordance with IFRS 4 Insurance Contracts is not required to restate prior periods to reflect the application of the amendments. [Refer:Basis for Conclusions paragraph BC16L] The entity may restate prior periods only if it is possible without the use of hindsight. [Refer:IAS 8 paragraphs 52 and 53] |
45K | If an entity does not restate prior periods applying paragraph 45I or paragraph 45J, at the date of initial application of the amendments [Refer:paragraph 45I (second sentence) and Basis for Conclusions paragraph BC16J (final sentence) regarding the date of initial application of the amendments] it shall recognise in the opening retained earnings (or other component of equity, as appropriate) any difference between:
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47 | This Standard supersedes IAS 28 Investments in Associates (as revised in 2003). |
International Accounting Standard 28 Investments in Associates (as revised in 2003) was approved for issue by the fourteen members of the International Accounting Standards Board.
| Sir David Tweedie | Chairman |
| Thomas E Jones | Vice-Chairman |
| Mary E Barth | |
| Hans-Georg Bruns | |
| Anthony T Cope | |
| Robert P Garnett | |
| Gilbert Gélard | |
| James J Leisenring | |
| Warren J McGregor | |
| Patricia L O’Malley | |
| Harry K Schmid | |
| John T Smith | |
| Geoffrey Whittington | |
| Tatsumi Yamada |
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture was approved for issue by eleven of the fourteen members of the International Accounting Standards Board. Mr Kabureck, Ms Lloyd and Mr Ochi dissented1 from the issue of the amendments to IFRS 10 and IAS 28. Their dissenting opinions are set out after the Basis for Conclusions.
| Hans Hoogervorst | Chairman |
| Ian Mackintosh | Vice-Chairman |
| Stephen Cooper | |
| Philippe Danjou | |
| Martin Edelmann | |
| Patrick Finnegan | |
| Amaro Luiz de Oliveira Gomes | |
| Gary Kabureck | |
| Suzanne Lloyd | |
| Takatsugu Ochi | |
| Darrel Scott | |
| Chungwoo Suh | |
| Mary Tokar | |
| Wei-Guo Zhang |
Investment Entities: Applying the Consolidation Exception was approved for issue by the fourteen members of the International Accounting Standards Board.
| Hans Hoogervorst | Chairman |
| Ian Mackintosh | Vice-Chairman |
| Stephen Cooper | |
| Philippe Danjou | |
| Amaro Luiz De Oliveira Gomes | |
| Martin Edelmann | |
| Patrick Finnegan | |
| Gary Kabureck | |
| Suzanne Lloyd | |
| Takatsugu Ochi | |
| Darrel Scott | |
| Chungwoo Suh | |
| Mary Tokar | |
| Wei-Guo Zhang |
Effective Date of Amendments to IFRS 10 and IAS 28 was approved for publication by the fourteen members of the International Accounting Standards Board.
| Hans Hoogervorst | Chairman |
| Ian Mackintosh | Vice-Chairman |
| Stephen Cooper | |
| Philippe Danjou | |
| Martin Edelmann | |
| Patrick Finnegan | |
| Amaro Gomes | |
| Gary Kabureck | |
| Suzanne Lloyd | |
| Takatsugu Ochi | |
| Darrel Scott | |
| Chungwoo Suh | |
| Mary Tokar | |
| Wei-Guo Zhang |
Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) was approved for issue by 10 of 14 members of the International Accounting Standards Board (Board). Mr Ochi dissented. His dissenting opinion is set out after the Basis for Conclusions. Messrs Anderson and Lu and Ms Tarca abstained in view of their recent appointments to the Board.
| Hans Hoogervorst | Chairman |
| Suzanne Lloyd | Vice-Chair |
| Nick Anderson | |
| Martin Edelmann | |
| Françoise Flores | |
| Amaro Luiz de Oliveira Gomes | |
| Gary Kabureck | |
| Jianqiao Lu | |
| Takatsugu Ochi | |
| Darrel Scott | |
| Thomas Scott | |
| Chungwoo Suh | |
| Ann Tarca | |
| Mary Tokar |
| 1 | Ms Patricia McConnell (former IASB member) intended to dissent from the issue of the amendments to IFRS 10 and IAS 28 for the same reasons as Ms Lloyd and Mr Ochi. Her dissenting opinion is not included in these amendments, because her term as an IASB member expired on 30 June 2014. (back) |