Chapter 20 - Associates Flashcards
What is an associate?
an entity over which the investor has significant influnce
What is significant influence?
The power to participate in the financial and operating policy decisions of the investee
How much significant influence must be held for an associate to be established?
where investor holds 20-50% of ordinary share capital of investee
Associate accounted for using what?
equity accounting
What 4 things occur with equity accounting?
DO NOT consolidate line by line
Value of investment
Statement of financial position
Statement of profit or loss
What happens with the value if investment with an associate?
enhanced by parent’s share of post acquisition reserves, recognised within group reserves
What does the SFP include in an associate?
includes single-line non-current asset ‘Investment in associate’ (W6)
What does the SPL include in an associate?
includes single-line ‘share of associate profit’ shown below profit from operations
Are associates treated as a group entity with the parent and sub?
no
How are inter-company trading or balance treated?
no cancellation
How do we account for balances with associates? e.g., payables and receivables
do not eliminate balance between the associate and group companies
How do we account for trading with associates? e.g., revenue and cost of sales
we do not eliminate trading between the associate and group companies
How do we account for dividends with associates?
Remove dividends received from associate from the SPL
How do we account for PUP’s with associates?
A PUP adjustment is required where goods sold by or to the associate are unsold at the year-end
What is the PUP calculation for Parent selling to an associate?
- calculate profit included within transaction
- Calculate parent’s share
- sales value x profit element x % remaining x Parent %
