CA Final · Financial Reporting

Ind AS 28 Investments in Associates and Joint Ventures CA Final

Ind AS 28 governs how an investor accounts for an associate or joint venture, where it has significant influence or joint control. You apply the equity method: start at cost, add your share of post-acquisition profit and OCI, subtract dividends, eliminate unrealised profits, and test for impairment. Solve it with a clear working note for each step.

What this chapter covers

Ind AS 28 deals with investments where you do not control the investee but can still affect its decisions. If you hold significant influence, the investee is an associate. If you share joint control and have rights to its net assets, it is a joint venture. In both cases the standard requires the equity method in consolidated financial statements and in the investor's financial statements where the investor has no subsidiaries but has associates or joint ventures.

The chapter mixes numerical and theory content. You carry the investment at cost, then adjust it each year for your share of profit, other comprehensive income and dividends. You also adjust for fair value differences at acquisition, unrealised profits on transactions between you and the investee, and impairment. Written questions ask for the carrying amount at year end, and the share of profit shown in the statement of profit and loss.

This chapter links directly to Ind AS 110 (control and consolidated statements), Ind AS 111 (classification of joint arrangements), Ind AS 112 (disclosures), Ind AS 36 (impairment) and Ind AS 109 (financial instruments). It also connects to Ind AS 27 for separate financial statements. Most consolidation questions at Final include an associate or joint venture, so this chapter is rarely examined in isolation. Expect it as part of a larger group case.

This chapter is a regular part of consolidated financial statements questions, and it carries a mix of theory and numbers. The equity method is rule-based, so a student who learns the working format can score reliably. The chapter also feeds case-scenario MCQs on significant influence, loss of influence and changes in interest, which are quick marks if your concepts are clear. In separate financial statements, Ind AS 27 does not give the equity method option that IAS 27 gives, so always check which standard a question is applying.

Ind AS 28 Investments in Associates and Joint Ventures: topics in the order to study them

1Scope, Definitions and Significant InfluenceEvery later step depends on correctly deciding whether the investee is an associate, a joint venture or neither.
2Equity Method of AccountingThis is the core mechanism and the base for all numerical workings in the chapter.
3Exemptions, Classification and Changes in InterestOnce you can apply the method, learn when you may not apply it, and what happens when your stake rises or falls.
4Unrealised Profits and Transactions with AssociatesThis adds eliminations to your basic equity method working and is the most frequent numerical twist.
5Impairment and Losses in Excess of InterestImpairment and loss limits are applied to the carrying amount you have already built, so learn them after the adjustments.
6Separate Financial Statements and Carve-outs from IAS 28Study this last, as it needs a clear view of the standard's normal rules before you see where the Indian text departs.

How to prepare Ind AS 28 Investments in Associates and Joint Ventures

Treat this chapter as a short set of rules plus one repeatable working. Build the working first, then add each complication one at a time.

Read the definitions of associate, joint venture, significant influence and joint control. Write one line on each in your own words, along with the indicators of significant influence.
Learn the standard equity method working: cost, share of profit, share of OCI, dividends received, closing carrying amount. Practise it until you can set it out without looking.
Add fair value adjustments at the acquisition date. Work out the extra depreciation or amortisation on those differences and deduct your share from profit each year.
Practise unrealised profit eliminations for both upstream and downstream sales. In both cases the investor's share of the unrealised profit is eliminated. The remaining gain, which relates to the other investors' interests in the associate, is recognised. For downstream sales (investor sells to the associate), debit the investor's profit and credit the investment in the associate, because the asset sits within the associate. For upstream sales (associate sells to the investor), debit the investor's share of the associate's profit and credit the inventory or asset held by the investor group. Reverse the elimination when the asset is sold outside the group or used up.
Solve questions on step acquisitions, partial disposals, loss of significant influence and a switch between associate and joint venture. Note what is remeasured and what goes to profit or loss. When an associate becomes a joint venture, or the reverse, the equity method continues and the retained interest is not remeasured.
Do impairment and loss-limit questions. After applying the equity method, first check whether there is objective evidence of impairment using the indicators in paragraphs 41A to 41C of Ind AS 28. Only when such evidence exists, test the whole carrying amount as a single asset under Ind AS 36. Remember that losses beyond the carrying amount are generally not recognised unless there is an obligation.
Finish with a mixed consolidation case containing a subsidiary and an associate. Write short provision-and-conclusion answers for the theory parts.

Common mistakes in Ind AS 28 Investments in Associates and Joint Ventures

Treating dividends from the associate as income in consolidated profit or loss.
Fix: Under the equity method, reduce the carrying amount by dividends received. Only your share of the investee's profit goes to profit or loss.
Forgetting fair value adjustments and the extra depreciation on them.
Fix: Always compare fair value and book value of identifiable assets at acquisition. Adjust the associate's profit for the additional charge before taking your share.
Eliminating unrealised profit at 100% instead of at the investor's share.
Fix: For associates and joint ventures, eliminate only your share of the unrealised profit. For downstream sales, debit the investor's profit and credit the investment in the associate. For upstream sales, debit the share of the associate's profit and credit the inventory or asset held by the investor group.
Testing goodwill on its own for impairment.
Fix: Goodwill within an equity-accounted investment is not recognised separately. Test the whole carrying amount as one asset under Ind AS 36.
Continuing to record losses below zero.
Fix: Stop at nil carrying amount. Keep a memo of unrecognised losses, and recognise later profits only after they cover those losses.
Giving the IAS 28 answer in questions on carve-outs and separate financial statements.
Fix: Revise the Ind AS 28 text and the list of differences from IAS 28 as a separate sheet. In answers, state the Ind AS position first.

Last-day revision: Ind AS 28 Investments in Associates and Joint Ventures

Significant influence is the power to take part in financial and operating policy decisions, without control or joint control.
A holding of 20% or more of voting power is presumed to give significant influence unless it can be clearly shown otherwise. Below 20% the presumption is the opposite.
Potential voting rights that are currently exercisable or currently convertible are considered when assessing significant influence. Rights that cannot be exercised or converted until a future date or until a future event occurs are not considered.
A joint venture is a joint arrangement where the parties with joint control have rights to the net assets. Both associates and joint ventures use the equity method.
Equity method: initial cost, plus share of post-acquisition profit and OCI, minus dividends received.
Dividends received reduce the carrying amount. They are not income under the equity method.
Fair value differences at acquisition must be depreciated or amortised, and your share is deducted from the share of profit.
Unrealised profits on upstream and downstream transactions are eliminated only to the extent of the investor's interest. Downstream (investor sells to associate): debit the investor's profit, credit the investment in the associate. Upstream (associate sells to investor): debit the share of the associate's profit, credit the inventory or asset held by the investor group.
Under Ind AS 28, gains and losses on transactions between the investor and its associate or joint venture are recognised only to the extent of the unrelated investors' interests. The investor eliminates its own share and the remainder is recognised.
Apply the equity method until significant influence is lost. When the equity method ceases, remeasure any retained interest at fair value. Recognise in profit or loss the fair value of the retained interest plus any disposal proceeds, minus the carrying amount of the investment. Exception: if an associate becomes a joint venture, or a joint venture becomes an associate, the equity method continues and the retained interest is not remeasured.
Impairment: first check for objective evidence of impairment using the indicators in paragraphs 41A to 41C of Ind AS 28. Only when that evidence exists, test the whole carrying amount as a single asset under Ind AS 36. Goodwill included in it is not tested separately.
Stop recognising further losses once the carrying amount reaches zero, unless you have legal or constructive obligations or have made payments on behalf of the investee.
Know where the Indian text differs from IAS 28, and answer such questions with the Ind AS position stated clearly.

Ind AS 28 Investments in Associates and Joint Ventures practice questions

Ind AS 28 Investments in Associates and Joint Ventures in other exams

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

Ind AS 28 Investments in Associates and Joint Ventures: frequently asked questions

Is Ind AS 28 mainly theory or numerical?

It is both. The equity method and unrealised profit workings are numerical, while significant influence, exemptions and carve-outs are theory. Questions often mix them within a consolidation case, so prepare both sides.

Do I need to learn Ind AS 111 for this chapter?

You need the basic classification of joint arrangements, because Ind AS 28 applies only to joint ventures, not joint operations. Know the test of rights to net assets versus rights to assets and obligations for liabilities.

How is an associate treated in separate financial statements?

Under Ind AS 27, the investor accounts for its investments in associates and joint ventures in separate financial statements either at cost or in accordance with Ind AS 109. It applies the same accounting to each category of investment. The equity method option that exists in IAS 27 is not available under Ind AS 27.

What happens when I lose significant influence?

You stop using the equity method. Any retained interest is measured at fair value. The gain or loss in profit or loss = fair value of the retained interest + proceeds from any disposal − carrying amount of the investment at the date significant influence is lost. Amounts previously in OCI are accounted for as if the investee had directly disposed of the related assets or liabilities.