214 / 488
Chapter 21/ In vestments
ill
Ass ociates (lAS 28)
205
7.4 In de termi ning the investor ' s share of profits or losses, the most recentl y available financial
sta tements of the associate are used . If the repo rting dates of the investor and the as sociate are di f–
ferent , both should prepare financial statements as of the date as those of the investor unl ess it is
impracticable to do so.
7.5 If financial statements are prepared to a different reporti ng date, then adj ustme nts should be
made for any significant transact ions or events that occ urred be tween the date of the associate's
financial statements and the date of the inves tor's financial stateme nts. The di fference between the
repo rting dates should not be more than thr ee months.
7.6 If the associate uses accounting poli cies that are different from those of the investor, the asso–
ciate's financial statements should be adjusted and the investor ' s accounti ng po licies sho uld be
use d.
7.7 If the investor ' s share of losses of an associate equals or exceeds its interest in the associate,
then the inves tor should not recogni ze its sha re of any fur the r losses.
7.8 The interest in the associate is essentia lly the carrying amount of the investme nt using the eq –
uity method together with any ot he r long-term interests that are essentially pa rt of the investor' s net
investment in the associate. An examp le is a long-term loan from the investor to the associate.
Long- term interests in thi s co ntex t do not include trade receivabl es or payables or any secured
long-term receivabl es. Losses rec ogni zed in excess of the investor' s inv estment in ordinary sha res
should be applied to the other elements of the inves tor's interest in the associate in the order of
their priority in liqu idation .
7.9 When the investo r's interest is reduced to zero, any addi tional losses are provided for and
liabilities recognize d only to the extent that the investor has a legal or constructive obligatio n or
has made payments on behalf of the associate . When the associate reports profits, the investor ca n
recogn ize its share of those profits only after its share of the profits equals the sha re of the losses
not ye t rec ognized .
Practical Insight
November AG Gesellsc haft fur Mo lekulare Med izin , a German company, accounted for an
associate under the equity method in 200 I . As a result of the as sociate 's uncert ain financing,
the investment was written down to El , The wr ite-d own was cl assified as depreci ation but
should have been trea ted as an impairment loss in the income stateme nt.
8. IMPAIRMENT LOSSES
8.1 Imp airment indicators in lAS 39 app ly to investment s in associates . Be cause the goodwill is
incl uded in the carrying amo unt of the investme nt in an asso ciate and is not sepa rately recognize d,
it canno t be tested for impairment separa te ly by applying lAS 36 . Instead the entire carrying
amo unt of the investment is tested for impairmen t under lAS 36 by comparing the recoverable
amo unt wit h the carrying amount.
8.2 Each associate must be assessed individually regarding the recoverable amo unt of that invest–
ment unl ess the associate does not ge nerate independent cash flows.
8.3 An investment in an associate is accounted for in the investo r's separate financial statements
in accordance with lAS 27.
Case
Study 5
Facts
A
acquired
30%
of the issued capital of B for
$ 1
million on December
3 1, 20X5.
The accumulated prof–
its at that date were
$2
million. A appointed three directors to the board of B, and A intends to hold the
investment for a significant period of time. The companies prepare their financial statements to Decem–
ber
31
each year. The abbreviated balance sheet of B on December
31,
20X7 is