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A liability beyond the interest
Learning objectives
- Explain that a liability is recognised beyond the interest only if the investor has a legal or constructive obligation or has made payments on behalf of the associate.L3
Normative references
- IAS 28 §39Once the 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.
Original summaries of the paragraphs (reference register), never a quotation of the standard.
3 questions
- Once the investor's interest in the associate has been reduced to zero, a liability is recognised for additional losses only to the extent that the investor has a legal or constructive obligation, or has made payments on behalf of the associate.L3
- Alba SA has reduced its interest in Brise, an associate, to zero. Alba has legally undertaken to guarantee a loan of Brise. Its share of the additional losses for the year is 60,000, and the bank has called the guarantee: Alba paid 25,000 on behalf of Brise. What can Alba recognise in respect of these additional losses?L3
- Alba SA has reduced its interest in Brise, an associate, to zero. Alba has neither a legal or constructive obligation towards Brise nor made any payment on its behalf. A colleague recognises a liability of 90,000 for Alba's share of the additional losses for the year. What is the error?L3