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Home , Goodwill (accounting)

for investment in associates (Part 4)

In accordance with IAS 28(2011):10, the investment in the associate or joint venture is initially recognised at .

Associates and joint ventures should not investment subsequently increases. associated with . When financial statements of an acquired in stages be reclassified from to profit associate or a joint venture with a When an associate or a joint venture is or loss. If instead the original There are different views regarding Reporting periods of associates different reporting period are used, acquired in stages, goodwill is investment was measured at cost in the nature of the . and joint ventures adjustments are made for the effects calculated initially at the time at which accordance with IAS 39:46(c), a How an entity views the equity When applying the equity method, of any significant events or the investment becomes an associate revaluation gain is required to method is critical in its consideration the investor uses the most recent transactions that occur between the or a joint venture (i.e. when significant recognise the investment at fair of an appropriate accounting policy financial statements of the associate end of the associate's reporting influence or joint control is achieved). value and to calculate goodwill. No under IAS 28 for recognising or joint venture. When the end of the period and the end of the investor's The goodwill is calculated as the gain or loss should be recognised in impairment losses in respect of its reporting period of the associate or reporting period. difference between the cost of the profit or loss under this approach, associates and joint ventures. joint venture is different from that of investment and the investor's share of because there has been no the investor, the associate or joint Uniform accounting policies the net of the investee's realisation event (e.g. a disposal). In accordance with IAS 28(2011):40 – venture will prepare additional The investor's financial statements identifiable and liabilities. 42, interests in associates (or joint financial statements, for the investor's should be prepared using uniform The choice between these ventures) and the investor's share of use, corresponding to the investor's accounting policies for like In accordance with IAS 28(2011):10, approaches is an accounting policy the profit or loss of the associate (or reporting period, unless it is transactions and events in similar the investment in the associate or joint choice, which should be applied joint venture) are presented as a one- impracticable to do so, in which case circumstances.When an associate venture is initially recognised at cost. consistently for all acquisitions of line item in the statement of financial financial statements prepared for a uses different accounting policies When the investor has previously held associates achieved in stages. position and the statement of different reporting period may be from those of the investor for like an investment in the associate or joint comprehensive income respectively used. The difference between the transactions and events, the financial venture (generally accounted for under Subsequent accounting for and the investor is required to end of the reporting period of the statements of the associate or joint IAS 39 or, when adopted, IFRS 9), the goodwill monitor its investment for impairment associate or joint venture and that of venture used for the purposes of the deemed cost of the associate or joint as a whole. Furthermore, in The portion of the difference the investor, however, can never be equity method are adjusted to venture is the fair value of the original accordance with IAS 28(2011):38 – between the cost of an investment more than three months. conform the accounting policies of investment at the date that significant 39, the investor ceases to recognise and the amount of the underlying the associate or joint venture to influence or joint control is achieved its share of the investee's losses once equity in net assets of an associate The length of the reporting periods those of the investor. plus the consideration paid for the that is recognised as goodwill in it has reduced its investment to zero used and any difference between the additional stake. However, IAS 28 is accordance with IAS 28 should not be and only recognises a liability for ends of the reporting periods should not clear as to whether any gains or amortised. Because goodwill that subsequent losses to the extent that be consistent from period to period. losses arising on the original forms part of the carrying amount of it has incurred legal or constructive Oduware is the partner-in-charge of investment since its acquisition should an investment accounted for using obligations or made payments on Accounting and Financial Advisory be reflected in profit or loss at this the equity method is not separately behalf of the associate (or joint in Akintola Williams Deloitte point. recognised, neither is it tested for venture). Therefore, the equity When financial impairment separately by applying the method has some of the features This publication contains general Because IAS 28 does not mandate a requirements for impairment testing commonly associated with a statements of an information only and Akintola Williams particular accounting treatment in this methodology (sometimes Deloitte is not, by means of this goodwill in IAS 36 Impairment of associate or a joint publication, rendering accounting, regard, an entity may either: referred to as a 'closed box' view). Assets. Instead, the entire carrying venture with a business, financial, investment, legal, tax, ?? by analogy to IFRS 3, treat the amount of the investment is tested or other professional advice or services. However, in its guidance on the transaction as a disposal of the for impairment in accordance with equity method, IAS 28(2011):32 different reporting original investment for fair value and IAS 36 as a single , by comparing Deloitte refers to one or more of Deloitte states that, “a appropriate an acquisition of an associate or a its recoverable amount with its period are used, Touche Tohmatsu Limited, a UK private adjustments to the entity's share of joint venture, with the result that a carrying amount whenever, based on company limited by guarantee, and its the associate's or joint venture's adjustments are made network of member firms, each of which gain or loss on the disposal will the requirements in IAS 39 Financial profit or loss after acquisition are is a legally separate and independent typically be reflected in profit or loss; Instruments: Recognition and for the effects of any Measurement, there is an indication made in order to , for entity. Please see or www.deloitte.com/about for a detailed of impairment. example, for of the significant events or ?? recognise a revaluation gain on the description of the legal structure of depreciable assets based on their fair Deloitte Touche Tohmatsu Limited and its original tranche in an appropriate An impairment loss recognised in the values at the acquisition date. transactions that occur member firms. component of equity in order to get circumstances above is not allocated Similarly, appropriate adjustments to between the end of the to the appropriate starting point for to any asset, including goodwill, that the entity's share of the associate's or Akintola Williams Deloitte a member firm of Deloitte Touche Tohmatsu Limited, the equity method. Under this forms part of the carrying amount of joint venture's profit or loss after associate's reporting provides , tax, consulting, approach, if the original investment the investment in the associate. acquisition are made for impairment has been classified previously as an period and the end of accounting and financial advisory, Accordingly, any reversal of that losses such as for goodwill or and risk advisory to available-for-sale financial asset impairment loss is recognised in property, plant and equipment.” the investor's public and private clients spanning under IAS 39, the revaluation gain or accordance with IAS 36 to the extent Therefore, the equity method has multiple industries. Please visit us at loss recognised in other that the recoverable amount of the some of the features commonly reporting period. www.deloitte.com/ng

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