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Ok, we’re now moving on to IAS 28. – What does the IASB, require:

  1. The objective of this Standard is to prescribe the accounting for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.
  2. This Standard shall be applied by all entities that are investors with joint control of or significant influence.
  3. The equity method is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets. The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s other comprehensive income includes its share of the investee’s other comprehensive income. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Significant Influence

6. The existence of significant influence by an entity is usually evidenced in one or more of the following ways:

a. representation on the board of directors or equivalent governing body of the investee;

b. participation in policy-making processes, including participation in decisions about dividends or other distributions;

c. material transactions between the entity and its investee;

d. interchange of managerial personnel; or

e. provision of essential technical information.


“Holding 20% to 50% of the equity of another entity, therefore, means as a general rule that significant influence exists, but not control; therefore the investment is treated as an associate, provided that it is not a joint venture.

Photo: Andrew Foster

Under the equity method:

The equity method reflects the investor’s significant influence. This is less than control, but more than just the right to receive dividends that a simple investment would give.

  • the investor’s share of the associate (or JV)’s assets, liabilities, profits and losses is included in the investor’s financial statements; this represents a significant influence
  • the investor’s share of the associate (or JV) is shown on one line in profit or loss, one line in other comprehensive income and one line in the statement of financial position, making it clear that the associate (or JV) is separate from the main group (a single economic entity).

Disadvantages of the equity method

The equity method has some important disadvantages for users of the financial statements.

Because only the investor’s share of the net assets is shown, information about individual assets and liabilities can be hidden. For example, if an associate (or JV) has significant borrowings or other liabilities, this is not obvious to a user of the investor’s financial statements.

In the same way, the equity method does not provide any information about the components that make up an associate (or JV)’s profit for the period.”

Emile Woolf IFRS Essential 2018


IFRS Workbook 2017: IAS 28 Investments in Associates and Joint Ventures



Owning 30% of an undertaking may provide significant influence if the other shareholdings are smaller and in diverse hands. Our investor bought the 30% for a purpose and knew whether he/she would secure significant influence with the purchase.

Alternatively, holding a 30% interest when there is another shareholder with 70% may provide no significant influence, unless the 30% holder has something specific to offer, such as technical information.

Significant influence is also a key issue for IAS 24 Related Party Transactions.

IFRS Workbook 2017: IAS 28


Vera buys 25% of Lubov’s company for 250 on January 1. Vera is made a director and provides essential technical support.

The investment is recorded at cost (250). Lubov’s profits for the year are 100. Vera records her share of the profit as 25. She debits investment in associate 25 and credits income from associates 25 (even though there is no dividend).

Lubov revalues a building during the year, declaring a surplus of 200. Vera records her share as 50.

She debits investment in associate 50 and credits OCI 50.


I/B refers to Income Statement, Balance Sheet (Statement of Financial Position)


If there’s a difference between cost and investor’s share on investee’s net fair value of identifiable assets and liabilities, then it depends, whether this difference is positive or negative:

  • When the difference is positive (cost is higher than the share on net assets), then there’s a goodwill and you don’t recognize it separately It is included in the cost of an investment and NOT amortized,
  • When the difference is negative (cost is lower than the share on net assets), then it’s recognized as an income in profit or loss in the period when the investment is acquired. (IFRS Box)


Lucubrate Magazine, Issue 49, November 30th, 2018

The photo on top: pixabay.com

  • Accounting Series – Article No: 29
  • Accounting Theory – Advanced Part 19 (IAS 28)
  • by Peter Welch



Photo: pixabay.com



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Peter Welch
Peter Welch

GlobalCfo.LLC is an expert at developing entrepreneurs and building 3-5 year business plans and cash flow projections as a prerequisite for accessing financing sources. GlobalCfo.LLC targets accounting standards compliance and theory, sound infrastructure /process mapping and COSO 2013-17/solid internal controls, ERM, and last but not least documentation /Policy and Procedures and other manuals. Additionally, interim CFO services (or Rent-a-CFO by the hour/day) are offered locally or remotely as well as training at all levels and all functions, not just accounting; e.g., management and leadership skills. Pre/Post-M&A is also offered.

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