Long-term interests

Learning objectives

• Assess whether a long-term loan or receivable forms part of the investor's interest in the associate, and the order in which losses are applied.L3

Normative references

• IAS 28 §14AThe entity also applies IFRS 9 to other financial instruments in an associate or joint venture to which the equity method is not applied, including long-term interests that, in substance, form part of the net investment (para. 38); it applies IFRS 9 to those interests before applying paras. 38 and 40 to 43, without taking into account adjustments to their carrying amount arising from IAS 28. Paragraph added in October 2017, applicable since 1 January 2019 (para. 45G).
• IAS 28 §38If the entity's share of losses of an associate or a joint venture equals or exceeds its interest in it, the entity discontinues recognising its share of further losses. That interest comprises the carrying amount of the equity-accounted investment and the long-term interests that, in substance, form part of the net investment (items for which settlement is neither planned nor likely to occur in the foreseeable future, for example preference shares and long-term receivables or loans), excluding trade receivables, trade payables and secured receivables; losses in excess of the investment in ordinary shares are applied to the other components in the reverse order of their seniority.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• Under IAS 28, which statements about the investor's interest in the associate, which caps the share of losses recognised, are correct? More than one answer is possible.L3
• Alba SA has reduced to zero the carrying amount of its investment in Brise, an associate. It also holds a loan of 400,000 granted to Brise to finance its activity on a lasting basis, with no repayment schedule planned, and a trade receivable of 80,000 for current deliveries. Alba's share of the losses for the year is 150,000. Write a short note that concludes on the treatment of that share, distinguishing facts of the case, rule and professional judgement.L3