Indian Accounting Standard (Ind AS) 28 Summary
Indian Accounting Standard (Ind AS) 28, Investments in Associates and Joint Ventures is applied by all entities that are investors with joint control of, or significant influence, over an investee.
The definition of an associate is based on significant influence, which is the power to participate in the financial and operating policy decisions of the entity.
There is a rebuttable presumption of significant influence if an entity holds 20 percent or more of the voting rights of another entity.
Potential voting rights that are currently exercisable are considered in assessing significant influence.
Generally, associates and joint ventures are accounted for using the equity method in the consolidated financial statements.
Entities that are, or that hold investments in associates or joint ventures indirectly through venture capital organisations, mutual funds, unit trusts and similar entities, may elect to account for investments in associates and joint ventures at Fair Value Through Profit or Loss (FVTPL) in accordance with Ind AS 109, Financial Instruments. This election is required to be made on an investment-by-investment basis, at initial recognition of the associate or joint venture.
Equity accounting is not applied to an investee that is acquired with a view to its subsequent disposal if the criteria are met for classification as held for sale.
The entity’s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances unless, in case of an associate, it is impracticable to do so.
The investee’s reporting date cannot differ from that of the investor by more than three months, and should be consistent from period to period. Adjustments are made for the effects of significant events and transactions between the two dates.
If an equity accounted investee incurs losses, then the carrying amount of the investor’s interest is reduced but not to below zero.
Further losses are recognised as a liability by the investor only to the extent that the investor has an obligation to fund the losses or has made payments on behalf of the investee.
Unrealised profits and losses on transactions with associates are eliminated to the extent of the investor’s interest in the investee.
On the loss of significant influence or joint control, the fair value of any retained investments is taken into account in calculating the gain or loss on the transaction that is recognised in profit or loss. Amounts recognised in other comprehensive income are reclassified to profit or loss or transferred within equity as required by other Ind ASs.
A joint arrangement is an arrangement over which two or more parties have joint control. There are two types of joint arrangement: a joint operation and a joint venture.
In joint venture, the parties to the arrangement have rights to the net assets of the arrangement.
A joint venturer accounts for its interest in a joint venture in the same way as an investment in an associate – i.e. generally using the equity method.
A party to a joint venture that does not have joint control accounts for its interest as a financial instrument, or under the equity method, if significant influence exists.