IAS 28 provides guidance on accounting for investments in associates. An associate is an entity over which an investor has significant influence, defined as the power to participate in the financial and operating policy decisions, but is not in control or joint control. The equity method is used to account for investments in associates, where the investment is initially recognized at cost and subsequently adjusted for the investor's share of profits or losses in the associate. Disclosures are required about the nature and financial effects of interests in associates.

1. IAS 28 – Investment in
Associates

2. IAS 28: Investments in Associates
Scope: Applies to the investor who has significant influence but not control or
joint control.
Associate: An entity in which an investor has significant influence but not
control or joint control.
Significant influence: Power to participate in the financial and operating
decisions but not control them. Holding 20% or more of the voting power.
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3. Key Definitions
Associate An entity over which the investor has significant influence
Significant influence The power to participate in the financial and operating policy decisions of the investee but is not
control or joint control of those policies
Joint arrangement An arrangement of which two or more parties have joint control
Joint control 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
Joint venture A joint arrangement whereby the parties that have joint control of the arrangement have rights to the
net assets of the arrangement
Joint venturer A party to a joint venture that has joint control of that joint venture
Equity method A method of accounting whereby the investment is initially recognised 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

4. Evidence of Significant Influence
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1. representation on the board of directors or equivalent
governing body of the investee
2. participation in the policy-making process
3. material transactions between the investor and the
investee
4. interchange of managerial personnel
5. provision of essential technical information

5. Equity Method
The equity method is used for investments in another company where the
investor has 20% to 50% of the voting shares of the other company.
With the equity method initial recognition is at cost with increases or decreases
arising through their share of the investees profit or loss. These profits or
losses are disclosed separately and added or deducted from the investors P&L.
Distributions such as dividends reduce the carrying amount of the investment.
(IAS 28)
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6. Classification
Classification as non-current asset. An investment in an associate or a joint
venture is generally classified as non-current asset, unless it is classified as held
for sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations. [IAS 28(2011).15]

7. Disclosures
Interests in joint arrangements and associates
• An entity shall disclose information that enables users of its financial statements to
evaluate: [IFRS 12:20]
• the nature, extent and financial effects of its interests in joint arrangements and
associates, including the nature and effects of its contractual relationship with the
other investors with joint control of, or significant influence over, joint
arrangements and associates
• the nature of, and changes in, the risks associated with its interests in joint ventures
and associates.

8. Held-For-Sale Investment
When the investment, or portion of an investment, meets the criteria to be
classified as held for sale, the portion so classified is accounted for in
accordance with IFRS 5. Any remaining portion is accounted for using the
equity method until the time of disposal, at which time the retained investment
is accounted under IFRS 9, unless the retained interest continues to be an
associate or joint venture. [IAS 28(2011).20]

9. Held-For-Sale Criteria
• management is committed to a plan to sell
• the asset is available for immediate sale
• an active programme to locate a buyer is initiated
• the sale is highly probable, within 12 months of classification as held for
sale (subject to limited exceptions)
• the asset is being actively marketed for sale at a sales price reasonable
in relation to its fair value
• actions required to complete the plan indicate that it is unlikely that plan
will be significantly changed or withdrawn
IFRS 5

10. Measurement of Held-For-Sale Investments
After classification as held for sale. Non-current assets or disposal groups that are
classified as held for sale are measured at the lower of carrying amount and fair value
less costs to sell (fair value less costs to distribute in the case of assets classified as held
for distribution to owners). [IFRS 5.15-15A]
Impairment.
Impairment must be considered both at the time of classification as held for sale and
subsequently:
Any impairment loss that arises by using the measurement principles in IFRS 5 must
be recognised in profit or loss [IFRS 5.20]

11. Disclosures for Held-For-Sale Investments
• IFRS 5 requires the following disclosures about assets (or disposal groups) that are
held for sale: [IFRS 5.41]
• description of the non-current asset or disposal group
• description of facts and circumstances of the sale (disposal) and the expected
timing
• impairment losses and reversals, if any, and where in the statement of
comprehensive income they are recognised
• if applicable, the reportable segment in which the non-current asset (or disposal
group) is presented in accordance with IFRS 8 Operating Segments