Associates and joint arrangements - part 1

In this lesson

1. 0:00 Associates and joint arrangements overview
2. 1:31 Understanding associate ownership percentages
3. 4:05 Equity accounting versus consolidation
4. 6:39 Calculating associate investment value
5. 8:41 Associate profit and loss impact
6. 10:28 Worked example: Hillary and John associate
7. 14:04 Associate investment on statement of financial position

About this lesson

The lesson focuses first on associates, which arise when you own between 20% and 50% of another company's ordinary shares. At this ownership level, you don't have control (which would require over 50%), but you do have significant influence. This means you must use equity accounting rather than line-by-line consolidation. Unlike subsidiaries, an associate appears as a single line entry on both the group statement of financial position and the group statement of profit and loss. You'll learn that goodwill doesn't arise on associates, and there's no separate non-controlling interest calculation. The lesson walks you through the practical mechanics of equity accounting. For the statement of financial position, you calculate the investment value by taking the cost of acquisition, adding your share of post-acquisition profits, and deducting any cumulative impairment. For the statement of profit and loss, you record your percentage share of the current year's profit (minus any current year impairment) as a single line immediately below group operating profit. The lesson includes a worked example showing how these calculations come together, demonstrating how to handle the cumulative nature of the SFP figure versus the year-specific nature of the PNL figure. The lesson also introduces joint arrangements under IFRS 11, which are divided into two types: joint ventures and joint operations. This sets the foundation for understanding how these different structures are accounted for in group financial statements.

Duration: 16m