Financial Accounting · Associates

How to Include an Associate in the Consolidated SOFP

Updated 11 October 2026

An associate is shown in the consolidated statement of financial position as one line, investment in associate, using the equity method. Start with cost, add the group's share of post-acquisition profits and deduct any impairment. Add the same share of post-acquisition profit to group retained earnings. Closing retained earnings are already after dividends.

Understand Associate in the Consolidated Statement of Financial Position

An associate is an entity over which the investor has significant influence but not control. Significant influence is presumed when you hold 20% to 50% of the voting power. Because you do not control it, you do not add its assets and liabilities line by line. There is no non-controlling interest and no goodwill line in the group statement of financial position.

Instead, IAS 28 requires the equity method. The investment starts at cost. Each year it is increased by the group's share of the associate's profit after tax, because the group's wealth grows as the associate earns. Dividends reduce the investment only where you build it from the share of profit for the year, because they are a return of value already recognised. When you use post-acquisition retained earnings, dividends are already reflected, so there is no separate deduction.

The associate's closing retained earnings are already after dividends paid. So if you take post-acquisition profit from retained earnings, no further dividend adjustment is needed. If you work from profit for the year instead, deduct the group share of dividends from the investment. The parent's dividend income is already in the parent's retained earnings and is not added again.

Only profits earned after acquisition belong in group reserves. Profits earned before acquisition were already paid for in the cost of the investment. So you always split the associate's retained earnings into pre-acquisition and post-acquisition amounts.

The result is two effects. The carrying amount of the investment appears under non-current assets. The group's share of post-acquisition retained earnings is added to the parent's own retained earnings in group equity. Any goodwill inside the cost stays within the investment figure and is not shown separately.

In the exam this is usually a short working. Practise it until you can do it in two minutes.

Key formulas to remember

Carrying amount of investment in associate: Cost + (group % × associate post-acquisition profit) − impairment of investment; Post-acquisition profit = associate retained earnings at year end − retained earnings at acquisition. Closing retained earnings are already after dividends paid, so do not deduct dividends again. If you work from profit for the year instead, deduct the group share of dividends from the investment.
Alternative investment working: Group % × associate net assets at year end + goodwill within cost − impairment; Goodwill within cost = cost − group % × net assets at acquisition. Both methods give the same answer.
Group retained earnings: Parent retained earnings + (group % × associate post-acquisition retained earnings) − group share of impairment; Also adjust for any parent-only items given, such as unrealised profit on trading with the associate. Dividend income from the associate is already in parent retained earnings, so do not add it again.
Associate post-acquisition reserves: Associate retained earnings now − associate retained earnings at acquisition; Use retained earnings, not share capital. Share capital does not change in these questions.
Significant influence test: Holding of 20% to 50% of votes = presumed associate; This is a presumption. Over 50% normally means control and a subsidiary.

How to solve Associate in the Consolidated Statement of Financial Position questions

Use the same short working layout every time. It keeps the numbers organised and earns method marks.

1Confirm the holding gives significant influence (20% to 50%), so the equity method applies. Note the group percentage.
2Find the associate's retained earnings at the reporting date and at acquisition. Subtract to get post-acquisition profit.
3Calculate the group share: group % × post-acquisition profit.
4Build the investment: cost + group share of post-acquisition profit − any impairment. Show this as one line in non-current assets.
5Build group retained earnings: parent retained earnings + group share of associate post-acquisition profit − impairment.
6Replace the parent's investment in associate at cost with the equity-method carrying amount from step 4, so the investment appears once. Do not add the associate's assets or liabilities.
7Check that no non-controlling interest or separate goodwill figure was created for the associate.
8Cross-check: group % × associate net assets + goodwill within cost − impairment should equal the investment.

Quickest way: Two-line associate working

When to use it: Use this in multiple choice and number entry questions where you only need the investment figure or group reserves.

Calculate post-acquisition profit: closing retained earnings − acquisition retained earnings.
Multiply by the group % to get the share.
Investment = cost + share − impairment.
Group retained earnings = parent's + share − impairment.
If the answer needs only the movement, the same share is the increase in both figures.

Common mistakes in Associate in the Consolidated Statement of Financial Position

Adding the associate's assets and liabilities line by line.
Students copy the subsidiary method they learned first.
Fix: Remember that an associate is not controlled. Show one line only: investment in associate.
Taking the group share of total retained earnings instead of post-acquisition retained earnings.
Students forget that pre-acquisition profits were paid for in the cost.
Fix: Always subtract retained earnings at acquisition before multiplying by the percentage.
Creating a non-controlling interest for an associate.
The same working layout is reused from subsidiary questions.
Fix: There is no non-controlling interest for an associate. Only the group share is recognised.
Deducting dividends received again from the investment.
Students know dividends reduce the investment but forget retained earnings are already after dividends.
Fix: Using closing retained earnings already reflects dividends paid, so make no further dividend adjustment. Only deduct the group share of dividends if you start from profit for the year. Do not add the parent's dividend income again, as it is already in parent retained earnings.
Putting impairment only against the investment or only against reserves.
The double entry is not thought through.
Fix: An impairment reduces the investment and reduces group retained earnings by the same amount.
Keeping the parent's investment in associate at cost and also adding the equity-method figure, double counting it.
The parent's own statement already shows the cost of the investment.
Fix: The parent's investment at cost is replaced by the equity-method carrying amount: cost + share of post-acquisition profit − impairment. Show that total once and do not also keep the original cost line.

Worked examples

Example 1

Parent P bought 30% of Associate A for $90,000 on 1 January when A's retained earnings were $50,000. At the reporting date A's retained earnings are $110,000. P's own retained earnings are $200,000, which exclude any income from A. No impairment has arisen. Calculate the investment in associate and group retained earnings.

Show the solution

Post-acquisition profit of A = 110,000 − 50,000 = $60,000.
Group share = 30% × 60,000 = $18,000.
Investment in associate = 90,000 + 18,000 = $108,000.
Group retained earnings = 200,000 + 18,000 = $218,000.

Answer: Investment in associate $108,000; group retained earnings $218,000.

Example 2

Parent P owns 40% of Associate A, bought for $120,000 when A's retained earnings were $80,000. At the reporting date A's retained earnings are $140,000. The investment has been impaired by $5,000. P's own retained earnings are $300,000. Calculate the investment in associate and group retained earnings.

Show the solution

Post-acquisition profit = 140,000 − 80,000 = $60,000.
Group share = 40% × 60,000 = $24,000.
Investment before impairment = 120,000 + 24,000 = $144,000.
Investment after impairment = 144,000 − 5,000 = $139,000.
Group retained earnings = 300,000 + 24,000 − 5,000 = $319,000.

Answer: Investment in associate $139,000; group retained earnings $319,000.

Exam tips

Questions often ask for only one number. Do the short working and pick the answer quickly, but check each option against your figure.
Watch for distractor options built from the full retained earnings, or from 100% of post-acquisition profit.
Read the percentage carefully. An associate working that uses the wrong holding gives a wrong answer even if the method is right.
If impairment is mentioned, deduct it in both the investment and group retained earnings.
In number entry questions, enter the figure without symbols unless the question asks otherwise, and check the units.

Practice questions from Associates

Associate in the Consolidated Statement of Financial Position: frequently asked questions

How is an associate shown in the consolidated statement of financial position?

It is shown as a single line, investment in associate, within non-current assets. The line is cost plus the group share of post-acquisition profits, less any impairment. The associate's individual assets and liabilities are not added in.

Why do we use only post-acquisition profits?

Profits earned before acquisition were already reflected in the price paid for the investment. Including them again in group reserves would count the same value twice.

Is there goodwill or non-controlling interest for an associate?

There is no non-controlling interest. Goodwill is not shown separately; it is included within the carrying amount of the investment.

Do dividends from the associate affect the investment?

Dividends reduce the investment only if you build it from the share of profit for the year. If you use post-acquisition retained earnings, as in the usual working, dividends are already reflected, so make no separate deduction. The parent's dividend income is already in its retained earnings and is not added again.