5. Associates and Joint Ventures Flashcards
What is an associate?
An entity over which the investor has significant influence, but not control
What is significant influence?
The power to participate in the financial and operating policy decisions of the investee but not control over those policies
What is the general threshold of ownership to be called as an associate?
20 - 50%
What 4 things can indicate significant influence?
- Representation on the board
- Participation in policy
- Material transactions between investor and investee
- Provision of essential technical information
How should an investment in an associate be accounted for in the group SFP?
Using the equity method
What is the equity calculation for the investment in the associate?
Cost of associate
Plus: Group Share of post acqn profits
Less: Impairment losses
Less: Dividends received to date
What amount for profit from the associate is included in the Group P&L?
Associate % of Profit After Tax
Where is the group share of profit from associate included in the group P&L?
Group profit before tax
Is there an adjustment for intragroup transactions and balances for an associate?
No
What is the PUP adjustment if a parent sells to an associate?
Dr P CoS (and thus retained earnings) A% x PUP
Cr Investment in Associate A% x PUP
What is the PUP adjustment if a associate sells to a parent?
Dr Share of A’s Profit (and thus retained earnings) A% x PUP
Cr Group Inventories A% x PUP
What is a joint arrangement?
An arrangement over which two or more parties have joint control
What are the two types of joint arrangemnet?
A joint operation and a joint venture
What is a joint operation? (3)
- Parties have rights to assets and obligations to liabilities
- No separate entity
- Recognise share of assets and liabilities in their own separate financial statements
What is a joint venture? (4)
- Joint control and rights to net assets
- Separate legal entity, with own fin statements
- Include in group accounts using the equity method
- Eliminate any PUP arising on consolidation
