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Investment in Associate 18

1. The document discusses accounting for investments in associates using the equity method. It outlines adjustments that may be required to financial statements of associates and transactions between the investor and associate. 2. It also discusses discontinuing the use of the equity method when significant influence is lost, and the accounting for investments less than 20% using either the fair value or cost method. 3. Journal entries are provided for applying and discontinuing the equity method, achieving significant influence in stages, and the cost method for investments less than 20%.

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65 views3 pages

Investment in Associate 18

1. The document discusses accounting for investments in associates using the equity method. It outlines adjustments that may be required to financial statements of associates and transactions between the investor and associate. 2. It also discusses discontinuing the use of the equity method when significant influence is lost, and the accounting for investments less than 20% using either the fair value or cost method. 3. Journal entries are provided for applying and discontinuing the equity method, achieving significant influence in stages, and the cost method for investments less than 20%.

Uploaded by

gab camon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Investment in Associate 18

Saturday, June 13, 2020


5:11 PM
Adjustment of investee's operations
a. Most recent financial statement of the associates are used by investor in applying equity
method. When reporting dates of investee and investor are different, associates prepare
for the use of investor financial statement as of the same date. Difference in the
reporting date shall be no more than three months.
b. If associate uses accounting policies other than those of investor, adjustments shall be
made to conform the associate's accounting policies to those of the investor.
c. Profit and losses resulting from upstream and downstream transactions are recognized in
the investor's financial statement only to the extent of the unrelated investor's interest
in the associate.
 
Upstream Transactions
Sales of asset from associate to investor
Unrealized profit eliminated in investor's share in profit or loss of associate.
 
Downstream Transactions
Sales of assets from investor to associate
Unrealized profit is eliminated
 
Sale of Inventory
Unrealized gain is eliminated until sold to another party
 
Sale of Depreciable Asset
Unrealized gain is eliminated until sold to another party
Profit is realized as asset is used or over the remaining life of the asset

Discontinuance of equity method


Use of equity method is discontinued from the date it ceases to have significant influence over an
associate.
Consequently investor shall account for the investment:
a. Financial asset at fair value through profit or loss
b. Financial asset at fair value through other comprehensive income
c. Nonmarketable investment at cost or investment in unquoted investment
 
Measurement after loss of significant influence
Retained investment is measured at fair value on the date significant influence is lost
Difference between the carrying amount is lost
Fair value shall be included in profit or loss
Fair value at date it ceases to be associate is regarded as fair value on initial recognition
 
Journal entries
a. Remeasurement to fair value
Investment in associate
Gain from remeasurement to fair value
b. Reclassify as financial asset at fair value through profit or loss
Financial asset-FVPL
Investment in associate
 
Equity Method not Applicable
1. Parent exempted from preparing consolidated financial statements
2. Wholly owned or partially owned subsidiary and owners do not object not applying equity
method
3. Investor's debt and equity are not traded in a public market or "over the counter" market
4. Investor did not file financial statements with the SEC
5. Intermediate parent of investor produces consolidated financial statement for public use
that comply with PFRS
 
Accounting for investment of less than 20%
a. Fair value method
Applicable for FVPL and FVOCI
b. Cost method
Unquoted equity instrument or nonmarketable equity investment
 

 Under Fair value and cost method, investor do not share in profit or loss of investee
 Dividends are accounted as Dividend Income
 
Journal entry for cost method
a. Record investment
Investment in shares
Cash
b. Investee reported income
No entry
c. Received share dividends
Memo entry
d. Investee reported net loss
No entry
e. Cash dividends
Cash
Dividend income
f. Sale of investment
Cash
Investment in shares
Gain on sale of investment
 
Investment in associate achieved in stages
When investor with less than 20% interest obtained additional shares and achieved significant
influence
 
Fair Value Approach
a. Existing interest is remeasured at fair value changes is included in profit or loss
b. If accounted through comprehensive income any unrealized gain or loss is
reclassified to retained earnings
c. fair value of existing plus cost of interest acquired constitutes the total cost of
investment for initial application of equity method
d. Total cost minus carrying amount at the date of significant influence equals excess
cost over carrying amount or excess net fair value
 
Journal entryJournal entry
- Cost to - Fair
equity value to equity method:
method:
a. Original investment
a. Original investment
Investment in shares asset-FVOCI
Financial
Cash Cash
b. Recognize dividends
b. Recognize dividends
Cash Cash
Dividend income Dividend income
c. Record newc.interest
Change in fair value
Investment in associate asset-FVOCI
Financial
Unrealized gain - OCI
Cash d. Record new interest
d. Remeasure existingininterest
Investment at fair value
associate
Investment in sharesCash
Gain on remeasurement
e. Reclassify to unrealized
equity gain
e. Reclassify existing gain
Unrealized interest
- OCI
Investment in associate
Retained earnings
Investment inf.shares
Reclassify existing interest
f. Share inInvestment
net incomein associate
Investment in associate
Financial asset-FVOCI
Investment income
g. Share in net income
g. Cash dividends
Investment in associate
Cash Investment income
Investment inh.associate
Cash dividends
h. Amortization
Cash of excess of cost
Investment income Investment in associate
Investment ini. associate
Amortization of excess of cost
  Investment income
Investment in associate

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