Investment IN Associate PDF

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INVESTMENT IN ASSOCIATE (PAS 28) Definition: an entity over which the investor has significant influence Parent entity that controls one or more entity Subsidiary entity that is controlled another entity Joint Venture a joint arrangement where the parties that have joint control of the arrangement h...

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INVESTMENT IN ASSOCIATE (PAS 28) Definition: an entity over which the investor has significant influence Parent – entity that controls one or more entity Subsidiary – entity that is controlled by another entity Joint Venture – a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement Quantitative assumptions: 20% or more – significant influence (otherwise demonstrated) Less than 20% - no significant influence (otherwise demonstrated) Note: even a company is completely controlled by another entity (ex. Company A), other entities (companies C and D) can still have significant influence Cost – transaction cost + purchase price Non-current asset: Inv in Ass. Change in fair value is not recognized in Inv in Associate 50% in preference shares – equity method not applicable, Fair value

Problem 6: Deduct cumulative preference share from net profit regardless of declaration (kasi cumulative) Non-cumulative – only deduct when declared Silent: non-participating -> basic only No declaration no income even if cumulative Problem 7: Journal Entries Inv in Ass (@ cost) – 20,000 Cash -20000 Goodwill – 4 m Dividends – irrelevant in determining profit or loss (only in CA of investment) Goodwill – no effect on share of profit usually

Share of profit less inventory (because excess has effect on profit or loss – understated COGS, therefore increase COGS) -

Profit should be after tax If may sinabi after tax, multiply the adjustment (excess of inventory) by .7, because it should be consistent SOPA – share of profit of associate

Question 8: -

Goodwill is part of cost of investment, not separately recognized Negative goodwill (Gain on bargain purchase sa buscom) is income in the determination of investor’s share of the associate’s profit or loss during the period If negative goodwill, check muna baka may valuation errors, but if wala, income

Problem 10: -

Difference in estimate (different depreciation methods for 2 companies – ignore) Change in accounting policy – magbabago kasi dapat uniform – matarbaho

Problem 11 -

Inv in Ass is a one line business combination -> sa investment lang Impracticability exception – only if gap is not more than 3 months D. gains and losses resulting from “upstream” and “downstream” transactions, between an entity and its associate are recognized in the entity’s financial statements to the extent of unrelated interest

Problem 12 Share of profit of associate – ignore dividends and goodwill. Upstream transaction – Investee sold to investor Downstream transaction – investor sold to investee PIC Q&A 2017-03 Consensus The unrealized profit arising from the transaction between associates is eliminated to the extent of the investor’s interests in the associates Problem 13: 200 x .25 x .3 = 15,000

RECOGNIZING LOSS 1st Issue: when to stop recognizing loss 2nd Issue: when to start recognizing share in profit

16. B. other interests – any long term interests that, in substance, form part of the entity’s net investment in the associate

Investment in preferences shares – included sa “interest in associate” Loans receivable secured – not included Loans receivable unsecured – included Share of loss – until 8000 in problem 18 19. How are losses recognized using the equity method in excess of the entity’s investment in ordinary shares applied to the other components of the entity’s interest in an associate? B. in the reverse order of their seniority (i.e. priority in liquidation) -> priority yung equity (preference shares) over sa loan receivable J/E: SOLA – 7.5 m Equity inv in ass – OS 5 m preference shares 2m loans receivable .5 m

D. apply pas 36, not ECL pfrs 9

ASSOCIATE TO FVTOCI Investment in equity - associate – 237k Equity investment – associate 193.5k FV adjustment gain (P/L) 43.5 NOTE: the gain arising from converting Inv in ass to FVTOCI is recognized in P/L. subsequent remeasurements of fair value is through OCI na tho.

PFRS 5 – Held for sale -

Dapat mabenta within 1 year from date of classification What if hindi mabenta within 1 year – na disqualify? Apply equity method retrospectively, as if never siya naging held for sale.

How much is cost of associate? Fair value at acquisition date + transaction cost

Journal Entry: Equity investment – associate 1250k Cash 770k Equity inv – FVTPL 480k

Step acquisition: 10% bumili ng 15% naging 25%

Step acquisition: amount recognized in OCI should be transferred to RE PFRS 9: optional

General rule: if there is significant influence, use equity method Exception:

32. situations wherein entity can be exempted from consolidation, hence pwede na rin ma exempt sa equity method 33. investment entities C is the answer because Fair value may be more relevant 34. investment entity – exempted from preparing consolidated FS Pas 27 – separate FS 36. noncurrent – equity method investments 37. pfrs 12 B,c,d are pfrs 12 disclosure requirements

FAR.2923 1. A 2. D 3. A 4. D 5. B 6. D 7. C 8. D 9. D

10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37.

B D B C A B C A C B A D D C C C B D D B A D A C D D D A

FAR.2923 (DIY) 1. A 2. D 3. A 4. C 5. C 6. A 7. C 8. D 9. B 10. D...