Book

Advanced Financial Accounting: An IAS and IFRS Approach

Tan and Lee

Advanced Financial Accounting: Chapter 5

Group Reporting IV: Equity Accounting under IAS 28

Tan & Lee Chapter 5

© 2009

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Learning Objectives

1. Appreciate the different accounting policies for investment in associate 2. Understand the differences between cost and equity method and consolidation 3. 4. Know how to apply the equity method for investment in associate Perform an analytical check on the investment in associate balance

Tan & Lee Chapter 5

© 2009

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2009 © All rights reserved, McGrawHill Education (Asia)

Advanced Financial Accounting: An IAS and IFRS Approach

Tan and Lee

Content

1. 2. 3. 4. 5. Equity method versus cost method Equity method versus cost method Equity method versus consolidation An overview of the methodology of equity accounting Performing an analytical check on the investment in associate balance Specific procedures relating to the equity method

Tan & Lee Chapter 5

© 2009

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Concept of “Significant Influence”

• The power to participate in, but not govern, the financial and operating decisions of the investee • Default assumption:

– Percentage ownership of ≥ 20% and ≤ 50% of investee’s voting rights deemed as giving rise to “ significant influence”

• Other evidence of “significant influence”:

– Representation on the board of directors; – Participation in policy-making processes; – Material transactions between the investor and investee; – Interchange of managerial personnel; or – Provision of essential technical information

Tan & Lee Chapter 5 © 2009 4

2009 © All rights reserved, McGrawHill Education (Asia)

Advanced Financial Accounting: An IAS and IFRS Approach

Tan and Lee

Accounting Policy for Investments In Associates

Levels of financial reporting 1. Investor’s separate financial statements: legal entity 2. Consolidated financial statements (with subsidiaries and associates): economic entity 3....