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ACCA Strategic Professional · Strategic Business Reporting (International) · Associates and joint arrangements

Theta holds 50% of a joint venture, Zeta, accounted for by the equity method. Theta sells half of its holding, retaining 25%, and loses joint control but keeps significant influence over Zeta. Which statement is correct under IFRS Accounting Standards?

Theta continues to use the equity method, now treating Zeta as an associate, and does not remeasure the retained 25%, because a change from joint venture to associate with significant influence retained does not trigger fair value remeasurement.

  1. ATheta continues the equity method, now as an associate, with no remeasurement of the retained interestCorrect
  2. BTheta remeasures the retained 25% to fair value and recognises a gain or loss in profit or loss
  3. CTheta reclassifies the retained interest as a financial asset at fair value through OCI
  4. DTheta must restate prior periods to treat Zeta as an associate from the start

Explanation

IFRS 11 and IAS 28 state that when a joint venture becomes an associate, or vice versa, the equity method continues and the retained interest is not remeasured. Only the gain or loss on the part sold is recognised. Remeasurement applies when significant influence is lost entirely. No retrospective restatement is required.

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