BATANGAS STATE UNIVERSITY

The National Engineering University

BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus

Investment in Associate

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BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus

Objectives:

1. Describe the investment in associate and

significant influence.
2. Describe the initial recognition, subsequent
measurement, of investment in associate.
3. Solve problems using equity method

Leading Innovations, Transforming Lives, Building the Nation

BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus

Associate – is an entity over which the investor has a significant

influence.

Significant Influence – is the power to participate in the

financial and operating policy decisions of the investee but NOT
CONTROL or JOINT CONTROL of those policies.

Control – is the power over the investee or the power to

govern the financial and operating policies of an investee so as
to obtain benefits

Leading Innovations, Transforming Lives, Building the Nation

BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus
Identification of Associates

If an investor holds, directly or indirectly, 20% or more of

the voting power of the investee, it id presumed that the investor
has significant influence, unless it is clearly demonstrated that this
is not the case.

Conversely, if the investor holds, directly or indirectly, less

than 20% of the voting power of the investee, it is presumed that
the investor does not have significant influence, unless such
influence is clearly demonstrated. A substantial or majority
ownership by another investor does not necessarily preclude an
investor from having significant influence .

Leading Innovations, Transforming Lives, Building the Nation

 BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus

The existence of significant influence by an investor is usually evidenced in

one or more of the following ways:

a. Representation on the board of directors or equivalent governing

body of the investee;
b. Participation in policy making processes, including participation in
decisions about dividends or other distributions.
c. Material transactions between the investor and the investee.
d. Interchange of managerial personnel
e. Provision of essential technical information.

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 BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus
Classification of Investment in Equity Securities

% OF OWNERSHIP PREFERENCE SHARES ORDINARY SHARES

<20% FVTPL or FVTOCI FVTPL or FVTOCI

20% TO 50% FVTPL or FVTOCI Investment in Associate

>50% FVTPL or FVTOCI Investment in Subsidiary

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 BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus
Initially recognized at Cost
Subsequent Measurement - Using the Equity Method

Equity Method
The equity method is based on the economic relationship between the investor
and the investee . The investor and investee are viewed as a single economic unit. Under
the equity method, the investment in associate is increased or decreased to recognize the
investor’s share of the profit or loss of the investee after the date of acquisition.

1. The investor’s share of the profit or loss of the investee is recognized in the investor’s
profit or loss
2. Distributions received from investee reduce the carrying amount of the investment.
3. Adjustments to the carrying amount may also be necessary for changes in the
investor’s proportionate interest in the investee, arising from changes in the investee’s
equity that have not been recognized in the investee’s profit or loss.
3.1 Revaluation of property, Plant and Equipment
3.2 Foreign exchange translation differences

Leading Innovations, Transforming Lives, Building the Nation

BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus

Leading Innovations, Transforming Lives, Building the Nation

BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus

The investor should record its share in any increase or decrease in the following
OCI component of the associate:

1. Revaluation Surplus
2. Translation Gain or Loss
3. Effective Portion of Cash Flow Hedge
4. Actuarial Gain or Loss
5. Unrealized Gain or Loss on FVTOCI

Leading Innovations, Transforming Lives, Building the Nation

BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus

Formula
Acquisition Cost xx
Less: Book Value of Net Assets Acquired (xx)
Excess of Cost over Carrying amount xx
Undervaluation of depreciable Asset (xx)
Goodwill xx

Leading Innovations, Transforming Lives, Building the Nation

BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus
Problem 1

Leading Innovations, Transforming Lives, Building the Nation

BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus
Problem 2

Leading Innovations, Transforming Lives, Building the Nation

BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus
Problem 3

Leading Innovations, Transforming Lives, Building the Nation

BATANGAS STATE UNIVERSITY
The National Engineering University
BATANGAS STATE UNIVERSITY
ARASOF Nasugbu Campus

END OF PRESENTATION

Leading Innovations, Transforming Lives, Building the Nation