Strategic Business Reporting (International) · Group accounting including statements of cash flows

Associates and Joint Arrangements: IAS 28 and IFRS 11 Explained

Q: What is significant influence under IAS 28?

It is the power to take part in the financial and operating policy decisions of an entity without controlling it. A holding of 20% or more of votes presumes it exists. Board representation and other indicators can show it even below 20%.

Q: What is the difference between a joint venture and a joint operation?

In a joint venture, the parties have rights to the net assets and use the equity method. In a joint operation, the parties have rights to the assets and obligations for the liabilities, and each recognises its share of them directly.

Q: How do I account for an associate in consolidated accounts?

Use the equity method. Start with cost, add your share of post-acquisition profit and OCI, and deduct dividends received and any impairment. Show a single line in the statement of financial position and in profit or loss.

Q: Are dividends from an associate income in the group accounts?

No. Under the equity method, the dividend reduces the carrying amount of the investment. The group's income is the share of the associate's profit.

Updated 11 October 2026 · Fact-checked

An associate is an entity over which the investor has significant influence, usually shown by a holding of 20% or more of the votes. You account for it using the equity method (IAS 28). A joint arrangement is classified under IFRS 11 as a joint operation (share assets and liabilities) or a joint venture (equity method).

Understand Associates and Joint Arrangements

Start with control. If you control an entity, it is a subsidiary and you consolidate it line by line. If you do not control it but still have a real say in its decisions, you have an associate or a joint arrangement. The accounting then changes.

Significant influence is the power to take part in the financial and operating policy decisions of an entity, without control or joint control. IAS 28 presumes it exists when you hold 20% or more of the voting power, directly or indirectly. It is presumed absent below 20%. Both presumptions can be rebutted by facts. Other signs are board representation, taking part in policy decisions, material transactions between the two entities, interchange of managerial personnel, and supplying essential technical information. Also consider potential voting rights that are currently exercisable.

The equity method does not add the associate's assets and liabilities to the group. Instead, you show one line in the statement of financial position: the investment. It starts at cost. Each year you add your share of the associate's profit or loss, and your share of its other comprehensive income. You deduct dividends received, because they are a return of the investment and not income. In the group statement of profit or loss you show one line for the share of profit after tax of associates. Your share of the associate's OCI goes in group OCI.

Joint arrangements are governed by IFRS 11. There must be a contractual arrangement and joint control. Joint control means decisions on relevant activities need the unanimous consent of the parties sharing control. You then classify. In a joint operation, the parties have rights to the assets and obligations for the liabilities. Each party recognises its own assets, liabilities, revenue and expenses, including its share of jointly held ones. In a joint venture, the parties have rights to the net assets. Each party uses the equity method under IAS 28.

Classification depends on the structure, the legal form, the contractual terms and other facts and circumstances. A separate vehicle is not automatically a joint venture. If the contract or the facts give the parties the assets and the liabilities, for example because output is taken by the parties and they fund the debts, it can be a joint operation. Unrealised profits on trading with an associate or joint venture are eliminated to the extent of your interest, and the investment is tested for impairment under IAS 36 if there is objective evidence of impairment.

Key rules to remember

Significant influence presumption: Holding ≥ 20% of votes → significant influence presumed; < 20% → not presumed; Both are rebuttable. Look for board seats, policy participation and other indicators in the scenario.
Carrying amount of associate at year end: Cost + share of post-acquisition profit (and OCI) − dividends received − impairment losses; Share of profit is after tax. Use the profit of the associate for the period since acquisition, time-apportioned if acquired part-way through the year.
Unrealised profit: associate sells to investor (upstream): Group share of unrealised profit = Unrealised profit in closing inventory × group % ; deduct from share of associate's profit and from inventory; Do not eliminate the full profit. Only the investor's share. The inventory is in the investor's own books, so the credit reduces group inventory. The debit is made within the share of associate's profit.
Unrealised profit: investor sells to associate (downstream): Unrealised profit in closing inventory × group % ; deduct from the share of associate's profit and from the investment; The adjustment is shown within the share of associate's results line, so the equity-accounted result falls. The credit reduces the carrying amount of the investment.
Joint operation accounting: Recognise own assets, liabilities, revenue and expenses, plus share of jointly held items; Applies to a joint operator. No equity method.
Joint venture accounting: Equity method under IAS 28; Applies when the parties have rights to net assets.
Impairment of investment: Only if there is objective evidence of impairment (IAS 28): Impairment = carrying amount − recoverable amount (higher of fair value less costs of disposal and value in use); The test is not routine. It applies only when there is objective evidence of impairment, which means a loss event that has an impact on the investment's future cash flows, not just any indicator. Once triggered, measure it under IAS 36. Test the whole carrying amount as a single asset. Goodwill within it is not tested separately.

How to solve Associates and Joint Arrangements questions

Use this order for any associate or joint arrangement requirement. It works for a calculation or a discussion question.

1Decide the relationship. Check control first, then joint control, then significant influence. Quote the facts from the scenario that support your conclusion.
2For a joint arrangement, classify it: look at legal form, contractual terms and other facts. State whether the parties have rights to assets and obligations for liabilities (joint operation) or rights to net assets (joint venture).
3Choose the method: consolidation for subsidiaries, own share of assets, liabilities, revenue and expenses for joint operations, and the equity method for associates and joint ventures.
4For the equity method, start with cost. Add share of post-acquisition profit after tax and OCI, apportioned for time if needed.
5Deduct dividends received, then adjust for unrealised profit on intragroup trading, using the group percentage only.
6Test for impairment only if there is objective evidence of impairment under IAS 28. Compare the whole carrying amount with recoverable amount. Recognise any loss in profit or loss, typically as a separate line or within the share of results. Do not allocate it to goodwill.
7Present the answer: one line in the statement of financial position, one line in profit or loss for share of profit, and share of OCI in OCI. Show workings clearly and state your assumptions.

Quickest way: Associate working in four lines

When to use it: Use this when the question asks for the carrying amount of an associate or the share of profit in the group statements and time is short.

Line 1: cost of the investment.
Line 2: share of post-acquisition profit after tax, less your share of any unrealised profit. Keep your share of OCI as a separate figure and add it to the investment too.
Line 3: minus dividends received, minus impairment (only if there is objective evidence of impairment under IAS 28).
Line 4: total is the closing investment. The share of profit from line 2 (net of unrealised profit) goes to profit or loss. The share of OCI goes to group OCI. Write one short sentence naming the basis for classification (for example, 25% holding and a board seat indicate significant influence).

Common mistakes in Associates and Joint Arrangements

Adding the associate's assets and liabilities line by line into the group accounts.
Students mix up the equity method with full consolidation.
Fix: Remember the equity method gives a single line in each statement. Subsidiaries are consolidated line by line, and a joint operator recognises its own share of items line by line.
Treating dividends from the associate as income in group profit or loss.
The dividend is income in the investor's own books, so students leave it in.
Fix: In the group accounts, remove the dividend income and deduct the dividend from the investment instead. The share of profit is the income.
Eliminating 100% of unrealised profit on trading with an associate.
Students copy the subsidiary approach.
Fix: Eliminate only the investor's percentage share of the unrealised profit.
Classifying every joint arrangement through a separate entity as a joint venture.
Students focus on legal form alone.
Fix: Read the contract and other facts. If the parties take the output and are liable for the debts, it may be a joint operation.
Assuming a holding below 20% means there is no significant influence.
The 20% rule of thumb is learned as a fixed rule.
Fix: The 20% test is only a presumption. Look for board representation, policy participation and other indicators, and explain your judgement.
Testing goodwill in an associate separately for impairment, or testing the investment every year as a routine.
Students apply the subsidiary goodwill approach, including the annual test.
Fix: Goodwill is part of the carrying amount of the investment. Test only when IAS 28 objective evidence of impairment exists, such as a loss event. Then test the whole carrying amount as one asset, measured under IAS 36.

Worked examples

Example 1

On 1 April 20X1, Alpha bought 30% of the equity shares of Beta for $6,000,000 and gained significant influence. Beta's profit after tax for the year ended 31 March 20X2 was $2,000,000. Beta paid a dividend of $500,000 during the year. Alpha's year end is 31 March. Calculate the carrying amount of the investment in Beta at 31 March 20X2 and the amount in group profit or loss.

Show the solution

Check classification: 30% holding and significant influence, so Beta is an associate and the equity method applies.
Cost on 1 April 20X1 is $6,000,000.
Share of profit: 30% × $2,000,000 = $600,000.
Dividend received: 30% × $500,000 = $150,000. Deduct from the investment.
Closing carrying amount = $6,000,000 + $600,000 − $150,000 = $6,450,000.
Group profit or loss shows one line: share of profit of associate $600,000. The dividend income of $150,000 in Alpha's own books is removed on consolidation.

Answer: Investment in associate at 31 March 20X2 is $6,450,000, and the share of profit of associate in group profit or loss is $600,000.

Example 2

Gamma and Delta each own 50% of a venture, Epsilon, which was set up under a contract requiring unanimous consent for all key decisions. Epsilon is a separate legal entity. The contract states that Gamma and Delta take all of Epsilon's output in equal shares and must fund Epsilon's liabilities as they fall due, because Epsilon has no other source of cash. Explain how Gamma should classify and account for its interest in Epsilon.

Show the solution

Joint control: unanimous consent is needed for key decisions, and the parties share control through a contract. This is a joint arrangement under IFRS 11.
Classification: legal form (separate entity) suggests a joint venture. But the contract and other facts must also be considered.
The parties take all the output and fund the liabilities. This means they have, in substance, rights to the assets and obligations for the liabilities, because Epsilon depends on them for cash.
Conclusion: the arrangement is a joint operation, not a joint venture.
Accounting: Gamma recognises its own assets, liabilities, revenue and expenses, including its 50% share of those held jointly. Gamma does not use the equity method.

Answer: Epsilon is a joint operation under IFRS 11 because the contractual terms and facts give the parties the assets and obligations for liabilities despite the separate legal entity. Gamma recognises its 50% share of Epsilon's assets, liabilities, revenue and expenses line by line.

Exam tips

Always justify the classification with facts from the scenario before you do any calculation. Markers award marks for the judgement, not just the number.
For joint arrangements, write the two-part test: rights to assets and obligations for liabilities versus rights to net assets. Then apply it to the scenario.
Show every working line for the associate carrying amount, even if the arithmetic is simple. Method marks are easy to collect.
State unrealised profit adjustments with the percentage you applied and whether the sale was upstream or downstream.
Write short, professional comments where the scenario hints at bias or disclosure. Professional skills marks reward clear, concise communication and commercial awareness.

Practice questions from Group accounting including statements of cash flows

Associates and Joint Arrangements in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Associates and Joint Arrangements: frequently asked questions

What is significant influence under IAS 28?

It is the power to take part in the financial and operating policy decisions of an entity without controlling it. A holding of 20% or more of votes presumes it exists. Board representation and other indicators can show it even below 20%.

What is the difference between a joint venture and a joint operation?

In a joint venture, the parties have rights to the net assets and use the equity method. In a joint operation, the parties have rights to the assets and obligations for the liabilities, and each recognises its share of them directly.

How do I account for an associate in consolidated accounts?

Use the equity method. Start with cost, add your share of post-acquisition profit and OCI, and deduct dividends received and any impairment. Show a single line in the statement of financial position and in profit or loss.

Are dividends from an associate income in the group accounts?

No. Under the equity method, the dividend reduces the carrying amount of the investment. The group's income is the share of the associate's profit.