In the books of investor: Initial recognition : At cost Subsequent recognition : ◦ Increase / decrease carrying amount with profit /loss of the associate ◦ Recognise profit / loss of subsidiary in P& L account of investor ◦ Reduce the carrying amount with dividends received from associates Adjust the carrying amount for the following: ◦ changes in the investee’s other comprehensive income due to : Changes arising from the revaluation of property, plant and equipment foreign exchange translation differences. Adjust investor’s other comprehensive income: ◦ With the investor’s share of those changes arising from revaluation , exchange difference etc.
Investment A/CDetails Amount in Rs.lakhsCost of investment 80Share of post acquisition profit 25% 25 105Less : dividends received after acquisition 15 90Add : Share of revaluation surplus of PPE 25 % of Rs.40 lakhs 10Carrying amount 100P & L A/CShare of post acquisition profit 25Statement of Comprehensive incomeShare of revaluation surplus 10
In Parent company’s separate financial statements, no need to follow equity method. It is followed only in consolidated statement Presently Fair Value is not considered In AS dividend treatment is not specifically mentioned, though as per general principles, the same is reduced from investment value In IFRS , there is no concept of “Capital reserve”. Instead, when Net asset received is more than consideration paid, the excess is credited to P & L and corresponding increase in carrying amount.
Amount in Amount in Rs.Description Rs. Lakhs Lakhs Situation 1 Situation 2Investment at cost 80 80Share of Net asset at FV 75 85Goodwill / (capital reserve) 5 -5Carrying amount ( goddwill is embeded) 80 85In situation 2, Rs. 5 lakhs is credited to P & L
Interest in associate = carrying amount + Other long term interest Losses in excess of carrying amount of investment is recognised in “other interests” After “other interests” are also exhausted, additional losses if any by way of amount paid by a parent on behalf of associate, a liability should be recognised.
On loss of control, Reclassify the amounts recognized in “Other comprehensive income” on the same basis as it would be done by the parent when it disposes assets / liabilities directly. For example : ◦ The Profit or loss on financial assets held for sale recognized in “Other comprehensive income” shall be reclassified to “P & L account” ◦ Revaluation surplus recognized in “Other comprehensive income “ shall be reclassified to “Retained earnings”.
AcquisitionConsolidation of JV accounts date EntityDetails Entity A Entity B Entity AB AB Amount in rupeesShare capital 70000 50000 20000 20000Reserves and surplus 120000 130000 10000 6000Loan Funds 70000 50000 40000 30000Total 260000 230000 70000 56000Net fixed assets 180000 200000 50000 40000Investment in JV 1000 15000Net current assets 79000 15000 20000 16000Total 260000 230000 70000 56000financial statements after consolidation Entity A Entity BShare capital 70000 50000Reserves and surplus 120000+2000 122000 130000+2000 132000Capital reserve 12000Loan Funds 70000+20000 90000 50000+20000 70000Total 294000 252000Net fixed assets 180000+25000 205000 200000+25000 225000Goodwill 2000Investment in JVNet current assets 79000+10000 89000 15000+10000 25000Total 294000 252000