Ind AS 28, Investments in Associates and Joint Ventures

Ind AS 28

Ind AS 28, Investments in Associates and Joint Ventures: The objective of Ind AS 28 is to prescribe the accounting for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The Standard shall be applied by all entities that are investors  with joint control of, or significant influence over, an investee.

Ind AS 28

An associate is an entity over which the investor has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies.

Ind AS 111, Joint Arrangements, establishes principles for the financial reporting of parties to joint arrangements. A joint arrangement is an arrangement of which two or more parties have joint control. As per the Standard, an entity shall determine the type of joint arrangement in which it is involved. The classification of a joint arrangement as a joint operation or  a  joint venture depends upon the rights and obligations of the parties to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. The Standard requires that a joint venturer shall recognise its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with Ind  AS  28  Investments in Associates and Joint Ventures unless the entity is exempted from applying the equity method as specified in the standard.

Under the equity method, on initial recognition the investment in an associate or a joint venture is recognised at cost  and the carrying amount is  increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. The investor’s share of the investee’s profit or loss is recognised in the investor’s profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary  for  changes  in the investor’s proportionate interest in the investee arising from changes in the investee are other comprehensive income. Such changes include those arising from the revaluation of property, plant and equipment  and  from  foreign exchange translation differences. The investor’s share of those changes is recognised in the investor’s other comprehensive income (Ind AS 1, Presentation of Financial Statements).

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. If an associate or a joint venture uses accounting policies other than those of the entity for like transactions and events in similar circumstances, adjustments shall be made to make the associate’s or joint venture’s accounting policies conform to those of the entity when the associate’s or joint venture’s financial statements are used by the entity in applying the equity method, except if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries’.

After application of the equity method, including recognising the associate’s or joint venture’s losses, the entity applies the requirements of Ind AS 109, Financial Instruments to determine whether it is necessary to recognise any additional impairment loss with respect to  its net investment in  the associate or joint venture.

The Standard provides exemptions from  applying the  equity  method similar  to those provided in Ind AS 110, Consolidated Financial Statements to the parent that is exempted to prepare consolidated financial statements. The Standard also provides exemptions from applying the equity  method  when  the investment in an associate or a joint venture is held by,  or  is  held  indirectly through, an entity that is a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance  funds. Those investments may be  measured at  fair value through profit or  loss in accordance with Ind AS 109, Financial Instruments.

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