Associates and joint arrangements: formula sheet

Key formulas

Presumption of significant influence

Voting power ≥ 20% → significant influence presumed; < 20% → not presumed

Both directions are rebuttable. Count votes held directly and through subsidiaries, and consider currently exercisable potential voting rights.

Control vs influence vs joint control

Control → IFRS 10 (subsidiary); Joint control → IFRS 11; Significant influence → IAS 28 (associate)

Test control first. Only if it fails do you test for joint control, then significant influence.

Equity method on initial recognition

Investment in associate at cost = consideration paid (plus directly attributable costs)

Later it is adjusted for the investor's share of the associate's post-acquisition profit or loss and OCI, and reduced by dividends received.

Exemptions from the equity method

Held for sale (IFRS 5) | Parent exempt from consolidation | Venture capital or similar entity electing fair value through profit or loss

Where the exemption applies, use IFRS 5 or IFRS 9 as appropriate. Do not leave the investment unaccounted for.

Carrying amount of associate at year end

Cost + share of post-acquisition profit + share of post-acquisition OCI − dividends received − impairment losses

Use the associate's post-acquisition movement in net assets, then take your percentage share. Adjust for fair value depreciation and unrealised profits.

Goodwill within the investment

Cost of investment − (% × fair value of associate's identifiable net assets at acquisition)

A positive figure is goodwill and stays inside the investment. A negative figure is a gain recognised in profit or loss.

Share of profit of associate in group P&L

% × associate's profit after tax for the period (adjusted)

Shown as a single line. Adjust for fair value uplifts, accounting policy differences and unrealised profit. Time-apportion if acquired mid-year.

Share of OCI of associate

% × associate's OCI for the period

Shown in group OCI as a separate item. It is not included in the group profit for the year.

Significant influence presumption

Holding of 20% or more of voting power is presumed to give significant influence

The presumption can be rebutted by evidence. Influence can exist below 20%.

Unrealised profit in closing inventory

Unrealised profit = Inventory still held × profit margin on the transfer price

Use margin on selling price. If given as a mark-up on cost, convert: mark-up ÷ (100% + mark-up).

Investor's share eliminated

Group adjustment = Unrealised profit × group % in associate

Applies to both upstream and downstream. Only the group's share is removed.

Downstream adjustment

Dr Group cost of sales; Cr Investment in associate

Seller is the parent or subsidiary, so its profit is reduced by the group share. IAS 28 requires the elimination of the investor's share. Debiting cost of sales is the usual textbook convention, and other presentations are possible.

Upstream adjustment

Dr Share of profit of associate; Cr Investment in associate

Seller is the associate, so the share of associate profit is reduced.

Carrying amount of associate at year end

Cost + share of post-acquisition profit − dividends received − group share of unrealised profit still held at year end − impairment loss

Only the closing unrealised profit is deducted. Profit from earlier years that has been realised by sale is no longer deducted. Add or deduct share of OCI items too if the question gives them.

Recoverable amount

Higher of (fair value less costs of disposal) and (value in use)

Impairment loss = carrying amount − recoverable amount, if carrying amount is higher.

Joint control test

Joint control = contractually agreed sharing of control + unanimous consent needed for relevant activities

If no single party can direct the relevant activities alone, and unanimous consent is required, joint control exists. Some parties may be involved without having joint control.

Joint operation accounting

Recognise: own assets + own liabilities + own share of jointly held items + own share of revenue + own expenses

Applies to the relevant IFRS for each item. Share is by the rights and obligations in the contract, not always by ownership percentage.

Joint venture accounting

Investment at cost + share of post-acquisition profit or loss and OCI − dividends received

This is the equity method under IAS 28. Show one line in the statement of financial position and one in profit or loss.

Joint operator sale or contribution of assets to the operation

Recognise gain or loss only to the extent of the other parties' interests

Applies when the operator sells or contributes assets to its own joint operation. Full gain is recognised only once the assets are sold on to a third party. A full loss is recognised immediately if the sale or contribution provides evidence of a reduction in net realisable value of current assets or an impairment loss on non-current assets.

Equity method: share of profit

Share of profit of JV = JV profit after tax × investor's %

Adjust first for fair value differences and unrealised profit on transactions with the JV.

Associate to subsidiary: goodwill

Goodwill = consideration for new stake + fair value of previously held stake + NCI − fair value of identifiable net assets at the date control is gained

NCI is at fair value or at proportionate share of net assets, as the question says. The old associate stake is at fair value, not carrying amount.

Associate to subsidiary: remeasurement gain

Gain or loss in P/L = fair value of previously held stake − carrying amount of the associate (equity method balance) + reclassifiable OCI

Fair value less carrying amount is the starting gain. Add to it any associate OCI that would be reclassified to P/L if the associate had disposed of the related assets directly, such as exchange differences. Non-reclassifiable OCI, such as a revaluation surplus, does not go to P/L. It is transferred within equity, for example to retained earnings.

Increase in stake, still an associate

New carrying amount = old carrying amount + cost of extra shares + share of post-acquisition changes

No remeasurement and no gain or loss. Add the cost of the additional shares to the existing carrying amount. The investee's identifiable net assets are not remeasured. Compare the cost of the extra shares with your share of the fair values acquired only to identify any goodwill, or any bargain purchase, within the carrying amount.

Partial disposal, significant influence retained

Gain or loss = proceeds − (carrying amount × proportion sold)

Reclassify the same proportion of any associate OCI that would be reclassified on a disposal. The retained stake is not remeasured.

Loss of significant influence

Gain or loss = proceeds + fair value of retained stake − carrying amount of whole associate

Update the carrying amount to the date of disposal first. The retained stake is then an IFRS 9 financial asset, with fair value as its initial carrying amount.

Associate and joint venture swaps

Associate to joint venture, or joint venture to associate: continue the equity method with no remeasurement

Applies while significant influence or joint control continues. Control gained or lost follows IFRS 3 and IFRS 10.

Subsidiary to associate (loss of control)

Gain or loss = proceeds + fair value of retained interest − (carrying amount of the subsidiary's net assets + goodwill − carrying amount of NCI derecognised) + related OCI reclassified

The NCI is derecognised, so its carrying amount is taken out of the amount you deduct. What you deduct is the parent's share of net assets and goodwill. Reclassify the related OCI as if the subsidiary's assets had been disposed of directly. The retained stake at fair value becomes the cost of the associate for IAS 28. Take the gain in group P/L.

Quick revision

• An associate is an entity over which the investor has significant influence but not control or joint control.
• Significant influence is the power to take part in financial and operating policy decisions, not to control them.
• A holding of 20% or more of the votes presumes significant influence, but you must look at all facts.
• Equity method: start at cost, add share of post-acquisition profits, deduct dividends received and impairment.
• In the group statement of financial position, show the associate as one line in non-current assets.
• In the group statement of profit or loss, show the share of the associate's profit after tax as one line.
• Unrealised profit on trading with an associate is eliminated only to the extent of the group's share. For downstream sales (group to associate), eliminate the group's share of the profit against the investment in the associate and the group's profit. For upstream sales (associate to group), eliminate the group's share against the share of the associate's profit and the inventory held by the group. Adjust each transaction once, not against both the investment and inventory.
• Under IAS 28, the investment is tested for impairment under IAS 36 only when there is objective evidence of impairment. The test applies to the whole carrying amount as one asset, and goodwill is not tested separately. Any impairment loss is not allocated to any asset, including goodwill. Any reversal is recognised under IAS 36 to the extent the recoverable amount later increases, up to the original loss.
• A joint arrangement needs joint control: unanimous consent of the parties sharing control.
• A joint operator recognises its assets, including its share of any held jointly. It recognises its liabilities, including its share of any incurred jointly. It recognises its revenue from selling its share of the output, and its share of the revenue from the joint operation's sale of output. It recognises its expenses, including its share of any incurred jointly.
• A joint venturer uses the equity method for its interest in the net assets.
• Remeasure to fair value when you gain control (an associate or financial asset becomes a subsidiary) and when you lose control or significant influence (the retained interest is at fair value). A financial asset becoming an associate is at cost: the old holding's fair value plus the new consideration. There is no remeasurement when an associate and a joint venture swap, or when significant influence is retained after a partial disposal. In that partial disposal, the gain or loss on the part sold is still recognised in profit or loss, and a proportionate share of amounts previously in other comprehensive income is reclassified to profit or loss where required, but the retained interest is not remeasured.

Common mistakes

• Treating 20% or more as automatically an associate. Fix: Say 'presumed' and test the facts. If the investor cannot take part in policy decisions, explain why the presumption is rebutted.
• Treating a holding below 20% as never an associate. Fix: Look for board representation, material transactions or technical dependence. These can show significant influence even below 20%.
• Consolidating the associate line by line. Fix: Show one line for the investment and one line for the share of profit. Do not add assets, liabilities, revenue or costs.
• Leaving dividends received in group profit as well as share of profit. Fix: Remove the dividend income from group profit and deduct it from the investment, because the share of profit already captures the value.
• Eliminating 100% of the unrealised profit instead of the group share. Fix: Associates use the equity method. Always multiply the unrealised profit by the group percentage.
• Putting a downstream adjustment through the associate's profit when the question follows the usual convention. Fix: Ask who made the sale. By the usual convention, if the group sold, reduce the group's own profit (cost of sales); if the associate sold, reduce the share of associate profit. Follow any different presentation the question requires.
• Classifying as a joint venture just because a separate company exists. Fix: Always check the contractual terms and other facts. A company can still give the parties rights to assets and obligations for liabilities.
• Using proportionate consolidation for a joint venture. Fix: Joint ventures use the equity method only. Line-by-line treatment is for joint operations.
• Remeasuring the retained stake to fair value when the associate is only partly sold and influence remains. Fix: Remeasure only when status changes. If the investee is still an associate or joint venture, take a gain on the part sold only.
• Using the carrying amount of the old associate stake in the goodwill calculation when control is gained. Fix: Use the fair value at the date control is gained. Put the difference from carrying amount in P/L as a gain or loss.

Exam tips

• Always give reasons from the scenario. A bare '30% so associate' earns few marks, and professional skills marks reward applying facts.
• Write the order: control, joint control, significant influence. It shows a structured answer and avoids misclassification.
• When the scenario contains a short list of facts, tick each against the IAS 28 indicators and name them.
• Mention the exemptions even briefly. Examiners often add held-for-sale or fund status to test scope.
• If the investment fails the associate test, say which standard applies instead. Do not stop at 'not an associate'.
• Always give a one-sentence reason why the entity is an associate. Quote scenario evidence. This supports the technical and the professional skills marks.
• Set out a short working for goodwill, post-acquisition movement and the investment line. Markers award marks for each working even if the final number is wrong.
• Watch the dates. Mid-year acquisitions and part-year profit are common traps.