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Contents
14.2.1 Extract from FRS102: Section 14.2-14.3.
14.2.2.1 What forms of entities can be considered an associate.
14.2.2.2 Significant influence (the ability to assert the influence even if it is not asserted)
14.2.2.2.1 Requirements to consider potential voting rights where reviewing significant influence.
14.2.2.2.2 How is significant influence demonstrated.
14.2.2.2.3 When can the 20% or more holdings be rebutted – significant influence.
14.2.2.2.4 Consideration when slightly less than 20% held.
14.3 Measurement—accounting policy election.
14.3.1 Extract from FRS102: Section 14.4-14.4B.
14.4.1 Extract from FRS102: Section 14.5-14.6.
14.4.2.3 Deferred tax under the cost model
14.4.2.4 Illustration of the cost model
14.4.2.5 Recognition of Income.
14.5.1 Extract from FRS102: Section 14.8(a)-18.8(h)
14.5.2.2 Application of equity accounting.
14.5.2.2.2 Worked example illustrating equity accounting requirements.
14.5.2.4 Transactions with associates.
14.5.2.5 Date of associates financial statements.
14.5.2.6 Uniform Accounting policies
14.5.2.7 Losses in excess of investment
14.5.2.8 Deferred tax on unremitted earning in the consolidated financial statements.
14.5.2.8.2 Timing difference to reverse through sale.
14.5.2.8.3 Timing difference to reverse through receipt of dividends.
14.5.2.8.4 Example of deferred tax on unremitted earnings.
14.6 Discontinuing the equity method.
14.6.1 Extract from FRS102: Section 14.8(i)
14.6.2.2.1 Full derecognition of associate due to sale.
14.6.2.2.3 Transfer of associate as a result of loss of significant influence due to sale.
14.6.2.2.4 Loss of significant influence not due to sale.
14.7 Initial carrying amount of an associate following loss of control of an entity.
14.8 Step increase in an existing associate.
14.9 Step increase from investment/financial asset to associate.
14.10.1 Extract from FRS102: Section 14.9-14.10A.
14.10.2.1 Fair value through other comprehensive income (OCI)
14.10.2.1.1 Measurement and recognition.
14.10.2.1.2 Treatment of transaction costs.
14.10.2.1.3 Frequency of valuations.
14.10.2.1.4 What happens when fair value cannot be measured reliably.
14.10.2.1.6 Example of application of Fair Value through Other Comprehensive Income model
14.10.2.1.7 Recognition of income.
14.10.2.2 Fair value through the profit and loss.
14.10.2.2.1 Measurement and recognition.
14.10.2.2.2 Frequency of valuations.
14.10.2.2.3 What happens when fair value cannot be measured reliably?.
14.10.2.2.4 Example of application of Fair Value through profit and loss model
14.11 Disclosure requirements.
14.11.1 Extract from FRS102: Section 14.11-14.15A.
14.11.2.2.2 Consolidated financial statements.
14.11.2.2.2.1 Accounting policies – consolidated financial statements.
14.11.2.2.2.2 Notes to the financial statements.
14.11.2.2.2.2.1 Financial assets.
14.11.2.2.2.3 Consolidated profit and loss amount showing share of associates.
14.11.2.2.3 Parent entity financial statements.
14.11.2.2.3.1 Accounting policies.
14.11.2.2.3.2 Notes for the financial statements.
14.11.2.2.3.2.1 Financial assets.
14.11.2.2.3.3 Profit and loss accounts for entity that is not a parent
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14.3 Measurement—accounting policy election
14.3.1 Extract from FRS102: Section 14.4-14.4B
14.4 An investor that is not a parent but that has an investment in one or more associates shall, in its individual financial statements, account for all of its investments in associates using either:
(a) the cost model in accordance with paragraphs 14.5 to 14.6;
(c) at fair value in accordance with paragraphs 14.9 to 14.10A; or
(d) at fair value with changes in fair value recognised in profit or loss.
The appendix to Section 2 Concepts and Pervasive Principles provides guidance on determining fair value.
14.4A An investor that is a parent shall, in its consolidated financial statements, account for all of its investments in associates using the equity method in accordance with paragraph 14.8, except as required by paragraph 14.4B.
14.4B Where an investor is a parent and has an associate that is held as part of an investment portfolio, the associate shall be measured at fair value with changes in fair value recognised in profit or loss in the consolidated financial statements.
14.3.2 OmniPro comment
14.3.2.1 Investor is not a parent or is a parent but is exempt from preparing consolidated accounts (i.e.individual entity accounts).
The options for a holder of an investment in an associate who is not a parent can choose to as detailed in Section 14.4 of FRS 102 :
- carry the investment at cost less impairment (see 14.4.2); or
- fair value through the profit and loss (see 14.10.2.1) or
- fair value through other comprehensive income (see 14.10.2.1).
An entity should apply the accounting policy chosen consistently for all investments which meet the definition of an associate.
14.3.2.2 Investor is a parent and prepares consolidated financial statements and does not hold associate as part of an investment portfolio.
For such a parent company preparing consolidated financial statements the associate must be accounted for: In the consolidated accounts as per Section 14.4A of FRS 102
- under the equity method (see 5.4).
14.3.2.3 Investor is a parent that prepares consolidated financial statements and holds associate as part of an investment portfolio
The investment is held as part of an investment portfolio in which case the interest should be measured:
- at fair value through the profit and loss.
An investment is held as part of an investment portfolio as defined in Appendix I of FRS 102 is ‘if its value to the investor is through fair value as part of a directly or indirectly held basket of investments rather than as a media through which the investor carries out business’.
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Examples
Example 1: Potential voting rights.
Example 2: Potential voting rights.
Example 4: Dividend paid out of pre-acquisition reserves.
Example 5: Equity method accounting.
Example 6: Elimination of profit where investor sells goods to investee.
Example 7: loss in excess of investment
Example 8: Deferred tax on enremitted earnings
Example 9: Full derecognition of associate due to sale.
Example 10: Partial derecognition of associate due to sale but significant influence still retained.
Example 11: Transfer of associate as a result of loss of significant influence due to sale.
Example 12: Loss of significant influence not due to sale.
Example 14: Step increase in an existing associate.
Example 15: Step increase from investment /financial asset to associate.
Example 16: Adoption of fair value through other comprehensive income.
Example 17: Adoption of fair value through profit and loss.
Example 18: Extract from the accounting policy notes to the consolidated financial statements.
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