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ACCA Applied Knowledge · Financial Accounting · Associates

Quill owns 35% of Nash, an associate. Nash's profit after tax for the year was $200,000. An impairment review shows the investment in Nash is impaired by $12,000. Where is the impairment loss recorded in Quill's consolidated statement of profit or loss?

The impairment loss is charged in the consolidated statement of profit or loss, usually deducted from the share of the associate's profit, so group profit falls by $12,000. It is not taken directly to reserves or non-controlling interest, since an associate has no non-controlling interest.

  1. ADeducted from the share of profit of associate, or shown as a separate expense, reducing group profitCorrect
  2. BAdded to the non-controlling interest
  3. CCharged directly to retained earnings with no effect on profit
  4. DDeducted from revenue as a trade discount

Explanation

Impairment of the investment in an associate is recognised in profit or loss, normally by deducting it from the share of associate's profit (35% x 200,000 = 70,000 less 12,000 = 58,000). It does not go to non-controlling interest because associates have none, and it is not taken straight to reserves.

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