📖 Overview
This standard addresses accounting treatment for investments in associates using the equity method. This method is applied when the investor has significant influence (typically 20-50% of voting rights).
🎯 Scope
This standard applies to investments in associates where the investor has significant influence (but not control). This method also applies to investments in joint ventures (ASC 808).
⚙️ Key Principles
1. **Significant Influence**:
- General presumption: 20% to 50% of voting rights.
- Influence can exist even with a lower percentage (e.g., board representation).
2. **Equity Method**:
- Investment is initially recorded at cost.
- The carrying amount is increased/decreased by the investor's share of the associate's profits or losses.
- The carrying amount is reduced by dividends received.
3. **Impairment Testing**:
- Investment is tested for impairment when indicators exist.
- Impairment loss is measured as the difference between carrying amount and fair value.
📏 Measurement
**Initial Measurement:**
- At cost (purchase price + transaction costs).
**Subsequent Measurement:**
- Increase carrying amount: Dr. Investment in Associate, Cr. Equity in Earnings.
- Decrease carrying amount: Dr. Equity in Loss (or Expense), Cr. Investment in Associate.
- Dividends received: Dr. Cash, Cr. Investment in Associate.
**Cost Basis Differences:**
- The difference between cost and fair value of identifiable assets and liabilities is amortized over their useful lives.
✅ Recognition
Investment is recognized when significant influence is acquired.
The investor's share of the associate's profits or losses is recognized in the income statement.
Dividends received are recognized as a reduction in the investment's carrying amount (not as revenue).
The investment is tested for impairment when indicators exist.
📊 Presentation
**On the Balance Sheet:**
- Investment in associates appears as a non-current asset (separate line item).
**On the Income Statement:**
- Share of profits or losses of associates appears within other income or expenses (before tax).
**Note Disclosures:**
- Name and ownership percentage of associates.
- Summary financial information of associates.
- Investor's share of profits and losses.
- Fair value of the investment (if available).
📝 Disclosure Requirements
Disclosures required:
- Name and ownership percentage of associates.
- Summary financial information of associates (assets, liabilities, revenues, net profit).
- Investor's share of profits and losses.
- Carrying amount of the investment.
- Fair value of the investment (if available).
- Any restrictions on transferring funds from associates.
- Any unrecognized obligations related to associates.
🔗 Related Standards
ASC 321 (Equity Securities), ASC 808 (Joint Ventures), ASC 820 (Fair Value Measurement)