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TMI BlogAccounting for Investments in Associates in Consolidated Financial StatementsX X X X Extracts X X X X X X X X Extracts X X X X ..... of separate financial statements by an investor. [2] Definitions 3. For the purpose of this Standard, the following terms are used with the meanings specified: 3.1 An associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture [3] of the investor. 3.2 Significant influence is the power to participate in the financial and/or operating policy decisions of the investee but not control over those policies. 3.3 Control: (a) the ownership, directly or indirectly through subsidiary(ies), of more than one-half of the voting power of an enterprise; or (b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities. 3.4 A subsidiary is an enterprise that is controlled by another enterprise (known as the parent). 3.5 A parent is an enterprise that has one or more subsidiaries. 3.6 A group is a parent and all its subsidiaries. 3.7 Consolidated financial statements are the financial statements of a gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profits or losses of the investee after the date of acquisition. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for alterations in the investor s proportionate interest in the investee arising from changes in the investee s equity that have not been included in the statement of profit and loss. Such changes include those arising from the revaluation of fixed assets and investments, from foreign exchange translation differences and from the adjustment of differences arising on amalgamations. Explanations .-(a) Adjustments to the carrying amount of investment in an investee arising from changes in the investee's equity that have not been included in the statement of profit and loss of the investee are directly made in the carrying amount of investee are directly made in the carrying amount of investment without routing it through the consolidated statement of profit and loss. The corresponding debit/credit is made in the relevant head of the equity interest in the consolidated balance sheet. For example, in case the adjustment arises because of revaluation of fixed assets by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of income on the basis of distributions received may not be an adequate measure of the income earned by an investor on an investment in an associate because the distributions received may bear little relationship to the performance of the associate. As the investor has significant influence over the associate, the investor has a measure of responsibility for the associate s performance and, as a result, the return on its investment. The investor accounts for this stewardship by extending the scope of its consolidated financial statements to include its share of results of such an associate and so provides an analysis of earnings and investment from which more useful ratios can be calculated. As a result, application of the equity method in consolidated financial statements provides more informative reporting of the net assets and net income of the investor. 9. An investor should discontinue the use of the equity method from the date that: (a) it ceases to have significant influence in an associate but retains, either in whole or in part, its investment; or (b) the use of the equity method is no longer appropriate because the associate operates under severe l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in the reporting dates, are consistent from period to period. 15. When financial statements with a different reporting date are used, adjustments are made for the effects of any significant events or transactions between the investor (or its consolidated subsidiaries) and the associate that occur between the date of the associate s financial statements and the date of the investor s consolidated financial statements. 16. The investor usually prepares consolidated financial statements using uniform accounting policies for the like transactions and events in similar circumstances. In case an associate uses accounting policies other than those adopted for the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to the associate s financial statements when they are used by the investor in applying the equity method. If it is not practicable to do so, that fact is disclosed along with a brief description of the differences between the accounting policies. 17. If an associate has outstanding cumulative preference shares held outside the group, the investor computes its share of profits or losses after ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely disclosed. 24. The name(s) of the associate(s) of which reporting date(s) is/are different from that of the financial statements of an investor and the differences in reporting dates should be disclosed in the consolidated financial statements. 25. In case an associate uses accounting policies other than those adopted for the consolidated financial statements for like transactions and events in similar circumstances and it is not practicable to make appropriate adjustments to the associate s financial statements, the fact should be disclosed along with a brief description of the differences in the accounting policies. Transitional Provisions 26. On the first occasion when investment in an associate is accounted for in consolidated financial statements in accordance with this Standard, the carrying amount of investment in the associate should be brought to the amount that would have resulted had the equity method of accounting been followed as per this Standard since the acquisition of the associate. The corresponding adjustment in this regard should be made in the retained earnings in the consolidated financial statements. ----------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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