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

Theta plc held 20% of Iota Ltd, an associate. Theta acquired an additional 15% for cash, so Iota remains an associate at 35% and no control is obtained. Which treatment applies under IAS 28 to the previously held 20%?

Theta does not remeasure the existing 20%. It adds the cost of the further 15% to the equity-accounted investment and measures goodwill on that new tranche at its purchase date, because the investee remains an associate throughout.

  1. ANot remeasured; the additional 15% is accounted for at cost and added to the equity-accounted investment, with goodwill on the new trancheCorrect
  2. BRemeasured to fair value through profit or loss immediately before the purchase
  3. CRemeasured to fair value through OCI with the gain recognised in equity
  4. DRestated retrospectively as if 35% had been held from original acquisition

Explanation

IAS 28 requires no remeasurement of the existing interest when an associate remains an associate. The additional consideration is added to the carrying amount and goodwill on that tranche is assessed on the fair values at that date. Remeasurement applies only on gaining control or losing significant influence.

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