ACCOUNTING FOR EQUITY INTERESTS IN OTHER ENTITIES
Accounting for Associate Companies in CSOFP and CSOCI (NZ IAS 28)
Steps to Incorporate Associate Company into the Consolidated Financial
Statements (CSOFP & CSOCI)
Definition of an Associate Company
Significant influence over strategic decisions of another entity without
control: some details
(a) through representation on its board or governing body
(b) participation in policy-making including decisions about
distributions
(c) entering into significant inter-company transactions
(d) exchanging managerial personnel
(e) providing necessary technical information
Accounting method for Associate Company
Equity Method of accounting for investments in Associate
investment originally recognized at cost
adjusted after acquisition for the investor’s share of the post-
acquisition changes in the investee’s book value or net assets
investor’s share of investee’s profit or loss is recognized in the SOCI of
the investor
distributions from the investee (e.g. dividends) reduce the carrying
amount of the investment
Benefits of the equity method
better information in the statement of comprehensive income about the
investor’s (and associate’s) performance than recognizing the dividend
received
if investor exercises influence that is beneficial to the investee, it
recognizes the positive effect on the investee’s profit in its own SOCI.
Examples of Investment in Associate Company
Investment in Associate Account – in Holdings
Intra Group Payables/Receivables Balances
Example of a Consolidated Statement of Comprehensive Income (CSOCI)
with Associate
Accounting for Associate Companies in CSOFP and CSOCI (NZ IAS 28)
Steps to Incorporate Associate Company into the Consolidated Financial
Statements (CSOFP & CSOCI)
Definition of an Associate Company
Significant influence over strategic decisions of another entity without
control: some details
(a) through representation on its board or governing body
(b) participation in policy-making including decisions about
distributions
(c) entering into significant inter-company transactions
(d) exchanging managerial personnel
(e) providing necessary technical information
Accounting method for Associate Company
Equity Method of accounting for investments in Associate
investment originally recognized at cost
adjusted after acquisition for the investor’s share of the post-
acquisition changes in the investee’s book value or net assets
investor’s share of investee’s profit or loss is recognized in the SOCI of
the investor
distributions from the investee (e.g. dividends) reduce the carrying
amount of the investment
Benefits of the equity method
better information in the statement of comprehensive income about the
investor’s (and associate’s) performance than recognizing the dividend
received
if investor exercises influence that is beneficial to the investee, it
recognizes the positive effect on the investee’s profit in its own SOCI.
Examples of Investment in Associate Company
Investment in Associate Account – in Holdings
Intra Group Payables/Receivables Balances
Example of a Consolidated Statement of Comprehensive Income (CSOCI)
with Associate
