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Financial Reporting · Ind AS 28 Investments in Associates and Joint Ventures

Ind AS 28: Impairment and Losses in Excess of Interest

Updated 5 October 2026 · Fact-checked

Under Ind AS 28, you recognise your share of an associate's or JV's losses until the investment carrying amount, plus long-term interests that are in substance part of it, falls to zero. Further losses go unrecorded unless you have obligations. Then you test the whole carrying amount for impairment under Ind AS 36 when there is objective evidence.

Understand Impairment and Losses in Excess of Interest

In the equity method you start with cost and then add your share of profits and subtract your share of losses. Your share of losses can keep reducing the carrying amount. A limited-liability investor cannot lose more than it has put in, so recognition stops at some point.

The investor's interest in an associate or JV is the carrying amount of the equity-method investment plus any long-term interests that, in substance, form part of the net investment. Examples are preference shares not accounted for as equity and long-term receivables or loans whose settlement is neither planned nor likely in the foreseeable future. Trade receivables, trade payables and well-secured long-term receivables (such as secured loans) are not part of it.

When your share of losses equals or exceeds your interest, you stop recognising further losses. You first reduce the equity-method investment to nil, then apply remaining losses to the other components of the interest in reverse order of seniority (priority in liquidation). Further losses are recognised as a liability only to the extent you have a legal or constructive obligation or have made payments on the associate's behalf. If the associate later reports profits, you resume recognising your share only after your share of profits equals the share of losses not recognised.

Long-term interests to which the equity method does not apply are accounted for under Ind AS 109, including its expected credit loss requirements. Ind AS 109 is applied first, without taking account of the associate's losses allocated under Ind AS 28 or any impairment loss on the net investment. Then the loss allocation is applied to the carrying amount of those interests as adjusted.

Impairment is separate. After applying the equity method, including loss recognition, you apply Ind AS 28 to decide whether there is objective evidence that the net investment is impaired, such as significant financial difficulty of the investee, breach of contract, or a fall in fair value below cost for an equity investment. If so, you test the entire carrying amount as a single asset under Ind AS 36, comparing it with its recoverable amount (the higher of value in use and fair value less costs of disposal). Goodwill included in the carrying amount is not tested separately. Because the loss is not allocated to goodwill, any reversal is recognised under Ind AS 36 to the extent the recoverable amount subsequently increases.

Key rules to remember

Interest in associate/JV
Equity-method carrying amount + long-term interests forming part of the net investment
This is the base against which your share of losses is capped.
Cap on loss recognition
Loss recognised = lower of (share of loss) and (remaining interest); excess is unrecognised
Recognise excess only if there is a legal or constructive obligation or payments made on behalf of the investee.
Order of absorption
Equity investment first, then other long-term interests in reverse order of seniority in liquidation
The most junior component absorbs losses first.
Resumption of profits
Recognise profit share only after: share of profits > share of unrecognised losses
Profits first recover unrecognised losses; the excess is recognised.
Impairment of net investment
Impairment loss = Carrying amount − Recoverable amount; Recoverable amount = higher of (Value in use, FVLCD)
Test the whole carrying amount as one asset, only when objective evidence exists.
Value in use of an associate (two approaches)
Share of PV of estimated future cash flows of the associate, or PV of expected dividends and final disposal proceeds
Either approach should give the same result under reasonable assumptions.

How to solve Impairment and Losses in Excess of Interest questions

Use this order for any question on losses beyond the investment or impairment of an associate or JV.

  1. 1Compute the carrying amount of the equity-method investment: cost, plus share of post-acquisition profits and OCI, less dividends, less earlier losses.
  2. 2Identify the long-term interests that form part of the net investment. Exclude trade balances and well-secured items.
  3. 3Apply Ind AS 109 to those interests first, including any expected credit loss, before allocating associate losses.
  4. 4Compute your share of the current loss. Absorb it first against the equity investment, then against other long-term interests in reverse order of seniority.
  5. 5Stop at nil. Disclose the unrecognised share of losses, and recognise a liability only if there is a legal or constructive obligation.
  6. 6Check for objective evidence of impairment of the net investment. If none, stop. If present, find recoverable amount as the higher of value in use and fair value less costs of disposal.
  7. 7Compare recoverable amount with the whole carrying amount. Charge any shortfall to profit or loss, without allocating it to goodwill separately.
  8. 8In later years, track unrecognised losses before recognising profits again, and consider reversal of impairment under Ind AS 36.

Quickest way: Waterfall table for losses

When to use it: Use when the question gives several components (equity shares, preference shares, loans) and a large loss.

  1. List components in order of seniority, with the most junior first, beside their carrying amounts.
  2. Write the share of loss and subtract it from the most junior component until that is nil, then move to the next.
  3. Anything left after all components reach nil is the unrecognised loss. Note it separately.
  4. Then compute impairment once on the remaining total carrying amount versus recoverable amount.

Common mistakes in Impairment and Losses in Excess of Interest

  • Letting the investment go negative and showing a liability without any obligation.

    Students apply consolidation logic, where the parent carries losses against non-controlling interest.

    Fix: Cap losses at the interest. Show a liability only if there is a legal or constructive obligation or payments on behalf of the investee.

  • Including trade receivables or well-secured loans in the interest.

    Students treat every balance with the associate as part of the net investment.

    Fix: Include only items whose settlement is neither planned nor likely in the foreseeable future. Exclude trade balances and well-secured items.

  • Absorbing losses against long-term interests in the wrong order.

    Students start with the largest or the loan balance.

    Fix: Equity investment first, then other components in reverse order of seniority in liquidation.

  • Allocating the impairment loss to goodwill.

    Students carry over the Ind AS 36 cash-generating unit allocation approach.

    Fix: Test the entire carrying amount as one asset. The loss is not allocated to goodwill or any other asset. Reversal is recognised under Ind AS 36 to the extent recoverable amount subsequently increases.

  • Testing impairment every year without evidence, or ignoring the order of tests.

    Students confuse the requirement with annual goodwill testing.

    Fix: Ind AS 28 requires the test only when there is objective evidence. Apply Ind AS 109 to long-term interests first, then losses, then impairment.

  • Recognising profits immediately after losses stopped.

    Students forget unrecognised losses.

    Fix: Keep a memo of unrecognised losses and recognise profit share only after it exceeds that amount.

Worked examples

Example 1

Alpha Ltd holds 30% of Beta Ltd, an associate. At the start of the year the equity-method carrying amount was ₹40,00,000. Alpha also has a long-term loan to Beta of ₹10,00,000 whose repayment is neither planned nor likely in the foreseeable future; it is not accounted for under the equity method and has no expected credit loss. Beta reports a loss of ₹1,80,00,000 for the year. Compute the loss recognised by Alpha, the closing carrying amounts and the unrecognised loss. Beta has no obligations to be covered by Alpha.

Show the solution
  1. Share of loss = 30% × ₹1,80,00,000 = ₹54,00,000.
  2. Interest = ₹40,00,000 + ₹10,00,000 = ₹50,00,000.
  3. Absorb first against the equity investment: ₹40,00,000 reduces it to nil.
  4. Remaining ₹14,00,000 is applied against the long-term loan, which has ₹10,00,000, so it reduces to nil.
  5. Loss recognised = ₹50,00,000. Unrecognised = ₹54,00,000 − ₹50,00,000 = ₹4,00,000.
  6. No legal or constructive obligation, so no liability is recognised. Disclose the ₹4,00,000.

Answer: Alpha recognises ₹50,00,000 of loss (₹40,00,000 against the investment and ₹10,00,000 against the loan). Both carrying amounts become nil. ₹4,00,000 of loss stays unrecognised and is disclosed.

Example 2

Gamma Ltd has a 25% associate Delta Ltd. The carrying amount of the investment at year end, after applying the equity method, is ₹90,00,000, including goodwill. Delta has lost a major customer and breached loan covenants, which is objective evidence of impairment. Gamma estimates the value in use of its investment at ₹78,00,000. The fair value less costs of disposal is ₹72,00,000. Compute the impairment loss and explain how it is treated.

Show the solution
  1. Objective evidence exists, so test the entire carrying amount of ₹90,00,000 as a single asset under Ind AS 36.
  2. Recoverable amount = higher of value in use ₹78,00,000 and fair value less costs of disposal ₹72,00,000 = ₹78,00,000.
  3. Impairment loss = ₹90,00,000 − ₹78,00,000 = ₹12,00,000.
  4. Recognise ₹12,00,000 in profit or loss. Do not allocate it to goodwill or other components; the investment is reduced to ₹78,00,000.
  5. If the recoverable amount rises in a later year, reverse the loss in full to the extent of the increase, subject to Ind AS 36 limits.

Answer: Impairment loss is ₹12,00,000, charged to profit or loss. The investment is carried at ₹78,00,000, and the loss is not allocated to goodwill.

Exam tips

  • Write the sequence clearly: Ind AS 109 on long-term interests, then loss allocation, then impairment under Ind AS 36. Marks follow the order.
  • In loss questions, always state the interest first and show the unrecognised balance and its disclosure.
  • In MCQs, check whether a balance is trade-related or well-secured. If so, it is not part of the net investment.
  • For impairment, write the trigger (objective evidence), the recoverable amount comparison, and the point that goodwill is not tested separately.

Practice questions from Ind AS 28 Investments in Associates and Joint Ventures

Impairment and Losses in Excess of Interest in other exams

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

Impairment and Losses in Excess of Interest: frequently asked questions

What happens when losses exceed the investment in an associate?

You stop recognising further losses once the interest is nil. You recognise a liability only if you have a legal or constructive obligation or have paid on the associate's behalf. The unrecognised amount is tracked and disclosed.

What are long-term interests in Ind AS 28?

They are items, such as preference shares or long-term receivables and loans, whose settlement is neither planned nor likely in the foreseeable future and which form part of the net investment. Trade balances and well-secured long-term receivables are excluded.

Is the impairment of an associate tested under Ind AS 36?

Yes, when there is objective evidence of impairment, the entire carrying amount is tested as a single asset under Ind AS 36. Recoverable amount is the higher of value in use and fair value less costs of disposal.

Is goodwill in an associate tested separately for impairment?

No. Goodwill is part of the carrying amount of the investment and is not recognised separately, so it is not tested separately. Any impairment loss is not allocated to goodwill.