TaxTMI 
TaxTMI 
Investments in Associates and Joint Ventures
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....ies are presented as those of a single economic entity. The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor's share of the investee's net assets. The investor's profit or loss includes its share of the investee's profit or loss and the investor's other comprehensive income includes its share of the investee's other comprehensive income. A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venturer is a party to a joint venture that has joint control of that joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. 4 The following te....
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....event. 8 In assessing whether potential voting rights contribute to significant influence, the entity examines all facts and circumstances (including the terms of exercise of the potential voting rights and any other contractual arrangements whether considered individually or in combination) that affect potential rights, except the intentions of management and the financial ability to exercise or convert those potential rights. 9 An entity loses significant influence over an investee when it loses the power to participate in the financial and operating policy decisions of that investee. The loss of significant influence can occur with or without a change in absolute or relative ownership levels. It could occur, for example, when an associate becomes subject to the control of a government, court, administrator or regulator. It could also occur as a result of a contractual arrangement. Equity method 10 Under the equity method, on initial recognition the investment in an associate or a joint venture is recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. ....
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....for using the equity method. When instruments containing potential voting rights in substance currently give access to the returns associated with an ownership interest in an associate or a joint venture, the instruments are not subject to Ind AS 109. In all other cases, instruments containing potential voting rights in an associate or a joint venture are accounted for in accordance with Ind AS 109. ^9[14A An entity also applies Ind AS 109 to other financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity's net investment in an associate or joint venture (see paragraph 38). An entity applies Ind AS 109 to such long-term interests before it applies paragraph 38 and paragraphs 40-43 of this Standard. In applying Ind AS 109, the entity does not take account of any adjustments to the carrying amount of long-term interests that arise from applying this Standard.] 15 Unless an investment, or a portion of an investment, in an associate or a joint venture is classified as held for sale in accordance with Ind AS 105, Non-current Assets Held for Sale and Discontinued Op....
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.... features. An entity shall make this election separately for each associate or joint venture, at initial recognition of the associate or joint venture. (See Ind AS 117, Insurance Contracts, for terms used in this paragraph that are defined in that Standard.)] 19 When an entity has an investment in an associate, a portion of which is held indirectly through a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure that portion of the investment in the associate at fair value through profit or loss in accordance with Ind AS 109 regardless of whether the venture capital organisation has significant influence over that portion of the investment. If the entity makes that election, the entity shall apply the equity method to any remaining portion of its investment in an associate that is not held through a venture capital organisation. Classification as held for sale 20 An entity shall apply Ind AS 105 to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. Any retained portion of an investment....
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.... entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. For example, if an associate or a joint venture has cumulative exchange differences relating to a foreign operation and the entity discontinues the use of the equity method, the entity shall reclassify to profit or loss the gain or loss that had previously been recognised in other comprehensive income in relation to the foreign operation. 24 If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the entity continues to apply the equity method and does not remeasure the retained interest. Changes in ownership interest 25 If an entity's ownership interest in an associate or a joint venture is reduced, but the entity continues to apply the equity method, the entity shall reclassify to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be required to be reclassified to profit or loss on the disposal of the....
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....y asset to an associate or a joint venture in exchange for an equity interest in the associate or joint venture shall be accounted for in accordance with paragraph 28, except when the contribution lacks commercial substance, as that term is described in Ind AS 16, Property, Plant and Equipment. If such a contribution lacks commercial substance, the gain or loss is regarded as unrealised and is not recognised unless paragraph 31 also applies. Such unrealised gains and losses shall be eliminated against the investment accounted for using the equity method and shall not be presented as deferred gains or losses in the entity's consolidated balance sheet or in the entity's balance sheet in which investments are accounted for using the equity method. 31 If, in addition to receiving an equity interest in an associate or a joint venture, an entity receives monetary or non-monetary assets, the entity recognises in full in profit or loss the portion of the gain or loss on the non-monetary contribution relating to the monetary or nonmonetary assets received. 32 An investment is accounted for using the equity method from the date on which it becomes an associate or a joint venture. On ac....
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....acticable to do so. ^3[ 36 Except as described in paragraph 36A, if an associate or a joint venture uses accounting policies other than those of the entity for like transactions and events in similar circumstances, adjustments shall be made to make the associate's or joint venture's accounting policies conform to those of the entity when the associate's or joint venture's financial statements are used by the entity in applying the equity method. ] ^6[36A Notwithstanding the requirement in paragraph 36, if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate's or joint venture's interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which (a) the investment entity associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint vent....
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....airment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the net investment (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows from the net investment that can be reliably estimated. It may not be possible to identify a single, discrete event that caused the impairment. Rather the combined effect of several events may have caused the impairment. Losses expected as a result of future events, no matter how likely, are not recognised. Objective evidence that the net investment is impaired includes observable data that comes to the attention of the entity about the following loss events: (a) significant financial difficulty of the associate or joint venture; (b) a breach of contract, such as a default or delinquency in payments by the associate or joint venture; (c) the entity, for economic or legal reasons relating to its associate's or joint venture's financial difficulty, granting to the associate or joint venture a concession that the entity would not otherwise consider; (d) it becoming prob....
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....mates: (a) its share of the present value of the estimated future cash flows expected to be generated by the associate or joint venture, including the cash flows from the operations of the associate or joint venture and the proceeds from the ultimate disposal of the investment; or (b) the present value of the estimated future cash flows expected to arise from dividends to be received from the investment and from its ultimate disposal. Using appropriate assumptions, both methods give the same result. 43 The recoverable amount of an investment in an associate or a joint venture shall be assessed for each associate or joint venture, unless the associate or joint venture does not generate cash inflows from continuing use that are largely independent of those from other assets of the entity. Separate financial statements 44 An investment in an associate or a joint venture shall be accounted for in the entity's separate financial statements in accordance with paragraph 10 of Ind AS 27. ^7[Effective date and transition 45 * 45A * 45B * 45C * 45D * 45E Annual Improvements to Ind AS - Amendments in Ind AS 112 and 28, amended paragraphs 18 a....
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....erm interests. The entity applies Ind AS 28 to its net investment in the associate, which includes long-term interests. The analysis in this example is not intended to represent the only manner in which the requirements in Ind AS 28 could be applied. Assumptions The investor has the following three types of interests in the associate: (a) O Shares-ordinary shares representing a 40% ownership interest to which the investor applies the equity method. This interest is the least senior of the three interests, based on their relative priority in liquidation. (b) P Shares-non-cumulative preference shares that form part of the net investment in the associate and that the investor measures at fair value through profit or loss applying Ind AS 109. (c) LT Loan-a long-term loan that forms part of the net investment in the associate and that the investor measures at amortised cost applying Ind AS 109, with a stated interest rate and an effective interest rate of 5% a year. The associate makes interest-only payments to the investor each year. The LT Loan is the most senior of the three interests. The LT Loan is not an originated credit-impaired loan. Througho....
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....hares Rs. 20 CR. Profit or loss Rs. 20 To recognise the investor's share of the associate's profit (Rs. 50 x 40%) At the end of Year 1, the carrying amount of O Shares is Rs. 220, P Shares is Rs. 110 and the LT Loan (net of loss allowance) is Rs. 90. Year 2 The investor recognises the following in Year 2: DR. Profit or loss Rs. 20 CR. P Shares Rs. 20 To recognise the change in fair value (Rs. 90 − Rs. 110) DR. Profit or loss Rs. 20 CR. Loss allowance (LT Loan) Rs. 20 To recognise an increase in the loss allowance (Rs. 70 - Rs. 90) DR. Profit or loss Rs. 80 CR. O Shares Rs. 80 To recognise the investor's share of the associate's loss (Rs. 200 x 40%) At the end of Year 2, the carrying amount of O Shares is Rs. 140, P Shares is Rs. 90 and the LT Loan (net of loss allowance) is Rs. 70. Year 3 Applying paragraph 14A of Ind AS 28, the investor applies Ind AS 109 to P Shares and the LT Loan before it applies paragraph 38 of Ind AS 28. Accordingly, the investor recognises the following in Year 3: DR. Profit or loss Rs. 40 ....
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....n) Rs. 10 CR. Profit or loss Rs. 10 To recognise a decrease in the loss allowance (Rs. 60 - Rs. 50) After applying Ind AS 109 to P Shares and the LT Loan, these interests have a positive carrying amount. Consequently, the investor allocates the previously unrecognised share of the associate's losses of Rs. 30 to these interests. DR. Profit or loss Rs. 30 CR. P Shares Rs. 20 CR. LT Loan Rs. 10 To recognise the previously unrecognised share of the associate's losses At the end of Year 5, the carrying amount of O Shares is zero, P Shares is zero and the LT Loan (net of loss allowance) is zero. Year 6 Applying Ind AS 109 to its interests in the associate, the investor recognises the following in Year 6: DR. P Shares Rs. 20 CR. Profit or loss Rs. 20 To recognise the change in fair value (Rs. 80 − Rs. 60) DR. Loss allowance (LT Loan) Rs. 10 CR. Profit or loss Rs. 10 To recognise a decrease in the loss allowance (Rs. 70 - Rs. 60) The investor allocates the associate's profit to each interest in the order of seniority.....
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.... Rs. 200 Rs. 5 Year 7 Rs. 20 Rs. 30 Rs. 200 Rs. 5] Appendix 1 Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 28, Investments in Associates and Joint Ventures, and the corresponding International Accounting Standard (IAS) 28, Investments in Associates and Joint Ventures, issued by the International Accounting Standards Board. Comparison with IAS 28, Investments in Associates and Joint Ventures 1. Paragraph 35 of Ind AS 28 requires use of uniform accounting policies, unless, in case of an associate, it is impracticable, which IAS 28 does not provide. This change has been made because the investor does not have 'control' over the associate, it may not be able to influence the associate to prepare additional financial statements or to follow the accounting policies that are followed by the investor. 2. Paragraph 32 (b) has been modified on the lines of Ind AS 103, Business Combinations, to transfer excess of the investor's share of the net fair value of the investee's identifiable assets and liabi....
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....licies (see paragraphs 35 and 36). " 3. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, " 36 If an associate or a joint venture uses accounting policies other than those of the entity for like transactions and events in similar circumstances, adjustments shall be made to make the associate's or joint venture's accounting policies conform to those of the entity when the associate's or joint venture's financial statements are used by the entity in applying the equity method. " 4. Inserted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 5. Substituted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018, w.e.f. 1st day of April, 2018, before it was read as, "18 When an investment in an associate or a joint venture is held by, or is held indirectly through, an entity that is a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure investments in those associates and joint ventures at fair value through profit or loss in accordance with Ind AS 109." 6. Substituted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-201....