Question bank — IAS 28 — Investments in Associates and Joint Ventures
73 questions in FR/EN/ES, scored by the real scoring engine.
Associate, joint venture and the equity method2 questions
- Significant influence is the power to participate in the financial and operating policy decisions of the investee, without control or joint control of those policies.True / falseL1
- Alba SA holds interests in three entities. In Brise SA, it has significant influence without control or joint control. In Cime SA, it shares control with another party, and both parties have rights to the net assets. In Dune SA, it has control. How is Brise SA classified for Alba?Single choiceL2
Exemptions from the equity method2 questions
- Which statements about the exemptions from the equity method are correct? More than one answer is possible.Multiple choiceL2
- Opale SA is 90% owned by Groupe Nacre; the other shareholders, who have been informed, do not object to its not preparing consolidated statements. Its securities are not traded in a public market, it has filed nothing with a regulator for a public issue, and Groupe Nacre publishes consolidated statements that comply with IFRS and are available for public use. Opale holds 30% of Brume SA, over which it has significant influence. Write a short note concluding on the equity method for Brume, distinguishing case facts, rule and professional judgement.JudgmentL3
Investment held for sale1 question
Definition of significant influence3 questions
- What is the significant influence of an investor over an investee?Single choiceL1
- Which statements about the associate, significant influence and the joint venture are correct? More than one answer is possible.Multiple choiceL1
- A colleague writes: "Alba SA can have significant influence over Brise SA only if it alone decides its financial and operating policies." What is wrong with this reasoning?Single choiceL1
The rebuttable 20% presumption3 questions
- If the investor holds, directly or indirectly, 20% or more of the voting power of the investee, significant influence is presumed, unless it can be clearly demonstrated that this is not the case.True / falseL1Variant
- Alba SA holds 22% of the voting power of Brise SA. Case convention: the facts clearly demonstrate that Alba has no ability to participate in Brise's financial and operating policy decisions. What is concluded about significant influence?Single choiceL2Variant
- Alba SA holds 18% of the voting power of Brise SA, while another investor holds 55%. Alba has a representative on Brise's board of directors (case data). Write a short note concluding on Alba's significant influence, distinguishing case facts, rule and professional judgement.JudgmentL2
Indicators of significant influence3 questions
- Which of these are indications of significant influence? More than one answer is possible.Multiple choiceL1
- Alba SA holds 15% of Brise SA. It has a director on Brise's board, enters into material transactions with Brise and provides it with essential technical information (case data). What can be said about Alba's significant influence?Single choiceL2
- Alba SA holds 12% of Brise SA, with no board seat. It provides essential technical information to it, exchanges managerial personnel with it and takes part in the discussions on dividend policy (case data). Write a short note concluding on Alba's significant influence, distinguishing case facts, rule and professional judgement.JudgmentL2
Potential voting rights2 questions
- In assessing significant influence, the entity takes account of its management's intention to exercise a call option and of its financial ability to do so.True / falseL2
- Alba SA holds 15% of the voting rights of Brise SA and warrants, currently exercisable, that would give it a further 10 points. Alba's management has no intention of exercising them and lacks the necessary funds (case data). How do these warrants enter the assessment of significant influence?Single choiceL3
The initial cost of the investment3 questions
- Alba SA acquires 30% of Brise SA, over which it has significant influence, and pays … in cash. Case convention: no incidental costs, and the cost includes any implicit goodwill. Record the entry for the initial recognition of the investment.Journal entryL1
- Alba SA acquires … of Brise SA. At the acquisition date, the fair value of Brise's identifiable net assets (identifiable assets and liabilities) is …. Calculate Alba's share of the net fair value of Brise's identifiable assets and liabilities.CalculationL2
- Alba SA acquires an interest in Brise SA, an associate, for 1,500,000. A colleague records the investment at 1,200,000, i.e. its share of the carrying amount of Brise's equity. What is the error?Single choiceL1
Share of profit and of other comprehensive income3 questions
- Alba SA holds … of Brise SA, an associate. Brise reports a profit of … after the acquisition. Case convention: no fair value adjustment, no difference in policies and no intragroup elimination. Calculate Alba's share of profit.CalculationL1
- Alba SA holds … of Brise SA, an associate. Brise recognises … of other comprehensive income during the year (case data). Record the entry that recognises Alba's share of that other comprehensive income.Journal entryL2
- Explain how the carrying amount of an interest in an associate changes after initial recognition, stating the effect of profit or loss, other comprehensive income and distributions.JudgmentL3
Dividends received3 questions
- Dividends received from an associate accounted for under the equity method are recognised as income by the investor.True / falseL1
- Brise SA, an associate accounted for under the equity method by Alba SA, pays Alba a dividend of …. Case convention: Alba has already recognised its share of Brise's profit. Record the entry for receipt of the dividend.Journal entryL2
- The carrying amount of Alba SA's interest in Brise SA, an associate accounted for under the equity method, is … at the start of the year. During the year, Alba's share of Brise's profit is …, its share of other comprehensive income is …, and Alba receives … in dividends. Case convention: no impairment and no other movement. Calculate the closing carrying amount.CalculationL2
Goodwill and bargain purchase3 questions
- Alba SA acquires … of Brise SA, an associate, for …. At the acquisition date, the fair value of Brise's identifiable net assets is …. Calculate the goodwill included in the carrying amount of the investment (income would be shown with a minus sign).CalculationL2Variant
- Alba SA acquires … of Cime SA, an associate, for … in cash. At the acquisition date, the fair value of Cime's identifiable net assets is …. Record the acquisition entry, the excess of the share over the cost being recognised as income.Journal entryL3Variant
- The goodwill included in the cost of an associate is neither amortised nor presented separately: it forms part of the carrying amount of the investment.True / falseL3
Fair value adjustments of the associate3 questions
- At the date Alba SA acquired Brise SA (an associate), the fair value of one of Brise's buildings exceeded its carrying amount by …. Case convention: the building is depreciated on a straight-line basis over its remaining useful life of …, with no residual value. Calculate the additional annual depreciation to be taken into account in the share of profit (before applying Alba's percentage).CalculationL2
- Alba SA holds 30% of Brise SA, an associate. Brise reports a profit of 400,000. At the acquisition date, a building of Brise had a fair value 500,000 above its carrying amount; it is depreciated on a straight-line basis over the remaining 10 years (case data). What share of profit does Alba recognise?Single choiceL3
- Alba SA holds 40% of Cime SA, an associate whose profit is 280,000. At acquisition, the fair value excess on an item of equipment was 240,000, with 8 years remaining. A colleague recognises a share of 112,000, i.e. 40% of 280,000. What is the error?Single choiceL2
Uniform accounting policies2 questions
- For the equity method, the associate's financial statements are prepared using uniform accounting policies for like transactions and events in similar circumstances.True / falseL2
- Alba SA applies to its investment property an accounting policy different from that of Brise SA, its associate, for similar assets (case data). Write a short note stating how to treat this difference before applying the equity method, distinguishing case facts, rule and professional judgement.JudgmentL3
Reporting dates2 questions
- Brise SA, an associate of Alba SA, has a 30 November year end, while Alba's is 31 December. In December, Brise sold a major asset (case data). How does Alba treat Brise's statements for the equity method?Single choiceL2
- Cime SA, an associate of Alba SA, has a 31 October year end, while Alba's is 31 December. Preparing statements of Cime as of 31 December is impracticable (case data). In November, Cime incurred a major exceptional loss. Write a short note stating how Alba treats Cime's statements, distinguishing case facts, rule and professional judgement.JudgmentL2
Upstream and downstream transactions3 questions
- Alba SA holds … of Brise SA, an associate accounted for under the equity method. Brise sold goods to Alba (upstream transaction); at the reporting date, the inventory bought from Brise and still held by Alba contains an unrealised profit of … (case data). Calculate the unrealised profit that Alba's share leads it to eliminate.CalculationL2Variant
- Alba SA holds … of Brise SA, an associate. Alba sold goods to Brise (downstream transaction); at the reporting date, Brise's inventory still contains a profit made by Alba of … (case data). Case convention: the elimination is presented as a debit to the share of profit of the associate, against the investment. Record the entry that eliminates Alba's share.Journal entryL3Variant
- Explain the difference between an upstream and a downstream transaction between an investor and its associate, then state why only the investor's share of the unrealised profit is eliminated.JudgmentL3
Losses that show an impairment3 questions
- When a downstream transaction provides evidence of a reduction in the net realisable value of the assets sold to the associate, or of an impairment of those assets, the investor recognises the related losses in full.True / falseL3
- Alba SA holds 40% of Brise SA, an associate. Brise sells Alba a batch of goods (upstream transaction). At the reporting date, the net realisable value of the batch is below its cost: the transaction reveals a reduction in value of those assets, for a loss of 100,000 (case data). What part of this loss does Alba recognise under IAS 28?Single choiceL3
- Alba SA holds 30% of Brise SA, an associate. Alba sells it a batch of equipment at a loss of 100,000 against its carrying amount in Alba's books. An independent valuation on file establishes that the net realisable value of the equipment is below its carrying amount in Alba's books. Write a short note that concludes on the treatment of the loss in Alba's financial statements, distinguishing facts of the case, rule and professional judgement.JudgmentL3
Contribution of non-monetary assets2 questions
- Alba SA contributes to Brise SA, its associate, land that does not constitute a business, in exchange for an interest in Brise. What principle governs the treatment of the gain or loss on that contribution in Alba's financial statements?Single choiceL3
- Alba SA contributes to Brise SA, its associate, machines that do not constitute a business, in exchange for a 25% interest in Brise. A colleague recognises the 200,000 gain on that contribution in profit or loss with no elimination at all. What is the error?Single choiceL3
The deferred 2014 amendments1 question
The cap on recognised losses3 questions
- Alba SA applies the equity method to Brise SA, an associate. At the reporting date, the carrying amount of the investment is …, and Alba has no other interest in Brise. Its share of the losses for the year is …. Calculate the share of losses recognised and the share that is not recognised.CalculationL2Variant
- Alba SA applies the equity method to Brise SA, an associate. The carrying amount of the investment is … and Alba's share of the losses for the year is …. Case convention: Alba has no other interest in Brise and no obligation towards it. Record the entry for the share of losses for the year.Journal entryL3Variant
- Alba SA has reduced its interest in Brise, an associate, to zero after several years of losses; it has no long-term interest in Brise and no commitment towards it. A colleague nevertheless recognises a further share of losses of 90,000 and presents a negative investment. What is the error?Single choiceL3
Long-term interests2 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.Multiple choiceL3
- 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.JudgmentL3
A liability beyond the interest3 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.True / falseL3
- 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?Single choiceL3
- 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?Single choiceL3
Objective evidence of impairment3 questions
- Under IAS 28, which statements about objective evidence of impairment of the net investment in an associate are correct? More than one answer is possible.Multiple choiceL3
- Alba SA holds 35% of Brise SA, an associate accounted for under the equity method. Since the acquisition, a new law has banned Brise's main product, which has caused serious financial difficulties for it (facts of the case). What should be concluded for Alba's investment in Brise?Single choiceL3
- Alba SA holds 40% of Brise SA, an associate. This year, Brise lost its main customer following a significant adverse change in its market, and it faces significant financial difficulty (facts of the case). In addition, its margin fell by one point for purely seasonal reasons, with no expected effect on its future cash flows. Write a short note that concludes on whether an impairment test is needed, distinguishing facts of the case, rule and professional judgement.JudgmentL3
The test of the whole investment as a single asset3 questions
- Alba SA holds an interest in Brise SA, an associate, and there is objective evidence of impairment. The whole carrying amount of the investment, including goodwill, is …. Its value in use is … and its fair value less costs of disposal is …. Calculate the recoverable amount of the investment and the impairment loss.CalculationL3
- Alba SA holds an interest in Brise SA, an associate. Following objective evidence of impairment, the test of the net investment, including goodwill, gives a recoverable amount of … against a whole carrying amount of … (case data). Record the entry for the impairment loss.Journal entryL3
- Alba SA holds an interest in Brise SA, an associate, whose whole carrying amount is 1,800,000, including 200,000 of implicit goodwill. Following objective evidence of impairment, a colleague tests the goodwill separately and compares only the balance of 1,600,000 with the recoverable amount. What is the error?Single choiceL3
Loss of significant influence3 questions
- Alba SA sells part of its interest in Brise SA and thereby loses significant influence; the retained interest is a financial asset. Alba receives consideration of …. The fair value of the retained interest is …, the amount of other comprehensive income to reclassify to profit or loss is … (gain), and the carrying amount of the investment at the date of loss of influence is … (case data). Calculate the gain recognised in profit or loss.CalculationL4
- Alba SA sells part of its interest in Brise SA, which makes it lose significant influence. It receives … in cash; the retained interest is a financial asset with a fair value of …, and the carrying amount of the investment is … (case data). Case convention: no amount of other comprehensive income is to be reclassified. Record the entry for the loss of significant influence.Journal entryL4
- Alba SA sells part of its interest in Brise SA, an associate. Case convention: the analysis of the facts concludes that Alba loses significant influence at the date of the sale, and the retained interest is a financial asset. What treatment does Alba apply from that date?Single choiceL3
From associate to joint venture2 questions
- When an associate becomes a joint venture, the investor discontinues the equity method and remeasures the retained interest at fair value.True / falseL3
- Alba SA holds 30% of Brise SA, an associate accounted for under the equity method. Under a new contractual agreement, Alba and another shareholder now exercise joint control over Brise, which becomes a joint venture (facts of the case). How does Alba treat its interest at the date of the change?Single choiceL3
Partial disposal and other comprehensive income2 questions
- Alba SA sells part of its interest in Brise SA, an associate, and retains significant influence. The sale represents … of its previous interest (case data). The accumulated other comprehensive income recognised in respect of Brise amounts to … (gain). Calculate the amount reclassified to profit or loss.CalculationL3
- Alba SA sells half of its interest in Brise SA, an associate, and retains significant influence: the reduction represents … of the previous interest. The accumulated other comprehensive income recognised in respect of Brise is … (gain). Case convention: the reclassified gain is credited to a gain-on-disposal account. Record the reclassification entry.Journal entryL4
The associate becomes a subsidiary1 question
Link with IFRS 112 questions
- Alba SA participates in a joint venture without exercising joint control. It holds 25% of the entity's voting rights and nothing in the case rebuts the presumption of significant influence (facts of the case). How does Alba account for its interest?Single choiceL3
- Explain how a party to a joint venture accounts for its interest depending on whether or not it has joint control, stating the role of significant influence.JudgmentL3