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WorkpaperIAS 28 — Investments in Associates and Joint VenturesL1 · L2 · L3

Equity method: cost, goodwill or bargain income, fair value adjustment, uniform policies, share of profit and of other comprehensive income, dividends and closing carrying amount

8 missions9 sections to document75 min
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Status
Published

Objective of the workpaper

List the cost, the share of the fair value of net assets at acquisition, the adjusted profit (uniform policies, extra depreciation of the fair value excess), other comprehensive income and dividends, then reconcile the opening carrying amount with the closing one. Percentages, fair values and lives are case data; the adjusted profit of the associate is computed by hand (no multi-line schedule is modelled).

9 sections · 40 blocks · 7 calculations · 6 entries

  • IAS 28 §10
  • IAS 28 §32
  • IAS 28 §35
  • IAS 28 §36
  • IAS 28 §33

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

8 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity
Significant influence: rebuttable 20 % presumption, indicators, definitions and basic equity method (cost, share, dividends)
Case tasks documented here
  • Brissan: record the initial investment at cost.
  • Brissan: compute Calvane’s share of profit.
  • Brissan: record the share of profit.
  • Brissan: what is Calvane’s share of the dividends and how to account for it?
  • Brissan: record the dividend received.
  • Brissan: compute the closing carrying amount of the investment.
1

Facts and data

Inputs

  • Associate: acquisition date, percentage held, nature of the cost (price paid or fair value of the retained interest)

    TextRequired

    THIRTY_PERCENT_ACQUIRED_ON_1_JANUARY_AT_COST_EQUAL_TO_SHARE_OF_NET_FAIR_VALUES

  • Investor’s percentage in the associate (%)

    Number

    30 %

  • Cost of the investment

    Number

    900,000

  • Amount recorded in the investment account at acquisition (cost, or share of net fair values if bargain income)

    Number

    900,000

  • Fair value of the identifiable net assets of the associate at acquisition

    Number

    3,000,000

  • Excess of fair value over carrying amount of depreciable assets

    Number

  • Residual value of the excess

    Number

  • Remaining useful life of the assets concerned (years)

    Number

  • Adjusted profit of the associate (uniform policies, extra depreciation, significant events)

    Number

    400,000

  • Other comprehensive income of the associate for the period

    Number

  • Dividends received from the associate (investor’s share)

    Number

    30,000

  • Share of losses recognised, limited to the investor’s interest

    Number

  • Remeasurement gain on the retained interest at fair value (loss of control)

    Number

  • Opening carrying amount of the investment (or cost at the start of the period)

    Number

    900,000

  • Closing carrying amount carried in the consolidated balance sheet, to be reconciled

    Number

    990,000

  • Associate’s accounting policies compared with the investor’s: differences and adjustments

    Text

  • Fair values at acquisition: source of the valuation, assets concerned, assumptions

    Text

  • Associate’s closing date, gap with the investor and significant events in between

    Text

2

Supporting documents

Evidence

  • Documents obtained and referenced (acquisition agreement, fair value valuation, associate’s statements, dividend notice)

    EvidenceRequired

3

Analysis of the equity method

Analysis

IAS 28 §10IAS 28 §32IAS 28 §35IAS 28 §36IAS 28 §33

  • Points reviewed: mechanics of the equity method

    ChecklistRequired

    • Investment recognised at cost, then adjusted for the investor’s share
    • Difference between the cost and the share of net fair values: goodwill included in the carrying amount (not amortised, not shown separately) or bargain income
    • Profit adjusted for the extra depreciation of the fair value excess at acquisition
    • Uniform policies: adjustments to the associate’s statements before applying the equity method
    • Same closing date or gap of no more than three months, significant events adjusted
    • Share of profit in profit or loss, share of other comprehensive income in other comprehensive income
    • Dividends received deducted from the carrying amount, no income
4

Calculations

Calculations

IAS 28 §32IAS 28 §10

  • Share of the net fair values (identifiable net assets × percentage)

    Calculation

    900,000

    Fair value of the identifiable net assets of the associate at acquisition ; Investor’s percentage in the associate (%)

  • Goodwill included in the carrying amount (cost − share of net fair values, positive part)

    Calculation

    0

    Cost of the investment ; − Share of the net fair values (identifiable net assets × percentage)

  • Bargain income when the difference is negative (share of net fair values − cost, negative part)

    Calculation

    0

    Cost of the investment ; − Share of the net fair values (identifiable net assets × percentage)

  • Extra annual depreciation of the fair value excess ((excess − residual value) ÷ life)

    Calculation

    Excess of fair value over carrying amount of depreciable assets ; Residual value of the excess ; Remaining useful life of the assets concerned (years)

  • Share of the associate’s adjusted profit

    Calculation

    120,000

    Adjusted profit of the associate (uniform policies, extra depreciation, significant events) ; Investor’s percentage in the associate (%)

  • Share of the associate’s other comprehensive income

    Calculation

    Other comprehensive income of the associate for the period ; Investor’s percentage in the associate (%)

  • Closing carrying amount (opening + share of profit + share of other comprehensive income − dividends)

    Calculation

    990,000

    Opening carrying amount of the investment (or cost at the start of the period) ; Closing carrying amount carried in the consolidated balance sheet, to be reconciled ; Share of the associate’s adjusted profit ; Share of the associate’s other comprehensive income ; − Dividends received from the associate (investor’s share)

5

Illustrative entries

Entries

  • Entry: acquisition of the investment in the associate

    Entry

    AccountDebitCredit
    Investment in associate900,000
    Cash paid900,000

  • Entry: share of the associate’s profit

    Entry

    AccountDebitCredit
    Investment in associate120,000
    Share of profit of the associate120,000

  • Entry: share of other comprehensive income

    Entry

    Debit Investment in associate ← Share of the associate’s other comprehensive income ; Credit Share of other comprehensive income of the associate ← Share of the associate’s other comprehensive income

  • Entry: dividend received from the associate

    Entry

    AccountDebitCredit
    Cash received30,000
    Investment in associate (decrease)30,000

  • Entry: share of the associate’s losses, within the investor’s interest

    Entry

    Debit Share of losses of the associate ← Share of losses recognised, limited to the investor’s interest ; Credit Investment in associate (decrease) ← Share of losses recognised, limited to the investor’s interest

  • Entry: interest retained after loss of control brought to fair value

    Entry

    Debit Investment in associate ← Remeasurement gain on the retained interest at fair value (loss of control) ; Credit Remeasurement gain on the retained interest ← Remeasurement gain on the retained interest at fair value (loss of control)

6

Judgments: uniform policies and fair value adjustment

Judgment

IAS 28 §35IAS 28 §36IAS 28 §32

  • Harmonisation of the associate’s accounting policies

    JudgmentRequired

    No difference in policy for similar transactions

    Policy difference adjusted before applying the equity method / No difference in policy for similar transactions / Not applicable

  • Rationale: similar transactions, investor’s policy, amount of the adjustment

    Text

    BRISSAN_APPLIES_THE_POLICIES_OF_THE_INVESTOR

  • Fair value adjustments at acquisition

    JudgmentRequired

    No fair value excess to track

    Independent valuation (case datum) / Management estimate (case datum) / No fair value excess to track

    Professional judgment: fair values and lives are case estimates, not rules of the standard.

  • Rationale: source of the fair values, assets concerned, depreciation life retained

    Text

    COST_EQUALS_SHARE_OF_NET_FAIR_VALUES

7

Effect on the financial statements

FS impact

  • Effect derived from the entries

    Table

8

Conclusion

Conclusion

  • Reconciliation of the opening carrying amount to the closing one with goodwill, adjustments and shares

    ConclusionRequired

9

Normative references

References

  • Normative references cited in this workpaper

    References

10

Checks and financial statement impact

  • Associate describedPass
  • Harmonisation of policies judgedPass
  • Fair value adjustments judgedPass
  • Acquisition entry balancedPass
  • Share of profit entry balancedPass
  • Share of OCI entry balancedNot evaluated
  • Dividend entry balancedPass
  • Share of loss entry balancedNot evaluated
  • Retained interest entry balancedNot evaluated
  • Initial amount recognised = cost + excess of the share of fair value over cost (zero when there is goodwill)Pass
  • Closing carrying amount recalculated = amount reportedPass
Assets
120,000
Liabilities
0
Profit or loss
120,000
OCI
0
Equity
120,000