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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″ custom_padding_tablet=”0px||0px|” custom_padding_last_edited=”on|desktop” prev_background_color=”#ffffff” next_background_color=”#000000″][et_pb_row][et_pb_column type=”4_4″][et_pb_toggle admin_label=”Index” _builder_version=”3.0.106″ title=”Index” open=”off”]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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14.6 Discontinuing the equity method
14.6.1 Extract from FRS102: Section 14.8(i)
14.8 (i) An investor shall cease using the equity method from the date that significant influence ceases and, provided the associate does not become a subsidiary in accordance with Section 19 Business Combinations and Goodwill or a joint venture in accordance with Section 15 Investments in Joint Ventures, shall account for the investment as follows:
(i) If the investor loses significant influence over an associate as a result of a full or partial disposal, it shall derecognise that associate and recognise in profit or loss the difference between the proceeds from the disposal and the carrying amount of the investment in the associate relating to the proportion disposed of or lost at the date significant influence is lost. The investor shall account for any retained interest using Section 11 Basic Financial Instruments or Section 12 Other Financial Instruments Issues, as appropriate. The carrying amount of the investment at the date that it ceases to be an associate shall be regarded as its cost on initial measurement as a financial asset; and
(ii) If an investor loses significant influence for reasons other than a partial disposal of its investment, the investor shall regard the carrying amount of the investment at that date as a new cost basis and shall account for the investment using Sections 11 or 12, as appropriate. The gain or loss arising on the disposal shall also include those amounts that have been recognised in other comprehensive income in relation to that associate, where those amounts are required to be reclassified to profit or loss upon disposal in accordance with other sections of this FRS. Amounts that are not required to be reclassified to profit or loss upon disposal of the related assets or liabilities in accordance with other sections of this FRS shall be transferred directly to retained earnings.
14.6.2 OmniPro comment
14.6.2.1 Overview
See the example below for application of the guidance is Section 14.8 (i) of FRS 102:
14.6.2.2 Illustration of the requirements where equity accounting is discontinued or associate is disposed of (or part thereof)
14.6.2.2.1 Full derecognition of associate due to sale
Example 9: Full derecognition of associate due to sale
If we take example 5 at 14.5.2.2.2 and assume at the start of year 2, Company A sold its 35% interest in the associate to a third party for CU70,000. The journals to post in the consolidated accounts are:
| CU | CU | |
| Dr Bank | 70,000 | |
| Cr Investment in Associate | 60,100 | |
| Cr Profit on Disposal of Associate | 9,900 |
Being derecognition in the consolidated accounts of the carrying amount up to the date of the disposal to reflect the profit on disposal as required by Section 14.8 (i) (i) of FRS 102.
14.6.2.2.2 Partial derecognition of associate due to sale but significant influence still retained
Example 10: Partial derecognition of associate due to sale but significant influence still retained
If we take example 5 at 14.5.2.2.2 and assume at the start of year 2, Company A reduced in holding in the associate from a 35% to a 25% interest. On sale the company received CU20,000 on sale. The journals to post in the consolidated accounts are:
| CU | CU | |
| Dr Bank | CU20,000 | |
|
Cr Investment in Associate (CU60,100*(10/35)) |
CU17,171 | |
| Cr Profit on Disposal of Associate | CU2,829 |
Being journal to reflect profit on disposal as required by Section 14.8 (i) of FRS 102.
From that date on the remaining carrying amount of CU42,929 (CU60,100-CU17,171) is treated as the investment cost as required by Section 14.8 (i) of FRS 102.
14.6.2.2.3 Transfer of associate as a result of loss of significant influence due to sale
Example 11: Transfer of associate as a result of loss of significant influence due to sale
If we take example 5 at 14.5.2.2.2 and assume at the start of year 2, Company A reduced its holding in the associate from a 35% to a 15% interest such that a significant influence Is not held however some of the investment is retained. On sale, the company received CU30,000 on sale. The journals to post in the consolidated accounts are:
| CU | CU | |
| Dr Profit on Disposal of Associate | 4,343 | |
| Dr Bank | 30,000 | |
|
Cr Investment in Associate (CU60,100*(20/35)) |
34,343 |
Being journal to reflect loss of significant influence and restated financial asset under Section 11 of FRS 102
From the date of sale, the remaining 15% with the a carrying amount of CU25,757 (CU60,100-CU34,343) is reclassed as a financial asset and accounted for in accordance with Section 11 – Basic Financial Instruments as required by Section 14.8(i) of FRS 102. Where fair value can be determined it will be fair valued at the end of each reporting date with movements posted in the profit and loss.
14.6.2.2.4 Loss of significant influence not due to sale
Example 12: Loss of significant influence not due to sale
If we take example 5 of 14.5.2.2.2 and assume significant control was lost due to additional shares being issued due to certain preference shares converting for example. In this instance no profit or loss is recognised on disposal instead the carrying amount of CU60,100 becomes the investment cost and is accounted for in accordance with Section 11 of FRS 102. This is as stated in Section 14.8 (i) (i) of FRS 102
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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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