5 Associates

Question 1

What is the % ownership of an associate?

Answer 1

20-50%

Question 2

What is the parents relationship with the associate?

Answer 2

• When the parent has significant interest
• Power to participate in the financial and operating policy but not to control

Question 3

Is an associate consolidated?

Answer 3

NEVER

Question 4

How is the investment recorded?

Answer 4

• Investment in associate is initially recorded at cost
• Then adjusted for post-acquisition change in net assets

Question 5

How does an associate affect working 1?

Answer 5

Just add them to the diagram

Question 6

How does an associate affect working 2?

Answer 6

It doesnt

Question 7

How does an associate affect working 3?

Answer 7

It doesnt

Question 8

How does an associate affect working 4?

Answer 8

It doesnt

Question 9

How does an associate affect working 5?

Answer 9

• Need to remove PURP (both P->A, A->P)
  + Add P’s % of A’s post acc profits
• Less A goodwill impairment

Question 10

What is working 5?

Answer 10

Investment in associate
+ Cost of investment
+ P’s % of A’s post acc profits
- Less A goodwill impairment
- PURP (P’s % if P is seller)

Question 11

How are fair value adjustments dealt with?

Answer 11

If the fair value of the associate’s net assets at acquisition are materially different from their book value:
* The net assets should be adjusted in the same way as for a subsidiary.

Question 12

Balances with Associate (CSFP)

Answer 12

The associate is considered to be outside the group.
* Balances between group companies and the associate remain in the consolidated statement of financial position.
* If a group company trades with the associate, the resulting payables and receivables will remain in the consolidated statement of financial position, i.e. do not off-set as you would with parent/sub.

Question 13

Trading with Associate

Answer 13

• Do not deduct sales/purchases between the group and the associate from the consolidated Turnover and COS in the CSP/L.
• Adjust for the parent’s share of unrealised profit in the inventory (PURP) – this will depend on whether the selling is upstream or downstream.

Question 14

Downstream – P sells to A

Answer 14

In CSFP:
- Deduct PURP from Group RE (W5)
- Deduct PURP from Investment in A (W6)
In CSPL:
+ Increase CoS by PURP

Question 15

Upstream – A sells to P

Answer 15

In CSFP:
- Deduct PURP from group RE (W5)
- Deduct PURP from inventory (on face of CSFP)
In CSPL:
- Reduce share of associate’s profit by PURP.

Question 16

Dividends - CSP/L

Answer 16

• Dividends from associates are excluded from the CSP/L
• Because the group’s share of the associate’s profit is included instead