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Investments in Associates and Joint Ventures

Ind AS - 028 - Rules - B. Indian Accounting Standards (Ind AS) - Companies (Indian Accounting Standards) Rules, 2015 - Ind AS - 028 - Indian Accounting Standard (Ind AS) 28 (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.) Objective 1 The objective of this Standard is to prescribe the accounting for investments in associates and to set out the requirements for the application of .....

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arent and its subsidiaries are presented as those of a single economic entity. The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor s share of the investee s net assets. The investor s profit or loss includes its share of the investee s profit or loss and the investor s other comprehensive income includes its share of the investee s other comprehensive income. A joint arrangement .....

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at joint venture. 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. 4 The following terms are defined in paragraph 4 of Ind AS 27, Separate Financial Statements, and in Appendix A of Ind AS 110, Consolidated Financial Statements, and are used in this Standard with the meanings specified in the Ind ASs in which they are defined: control of an investee group parent separate financ .....

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influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an entity from having significant influence. 6 The existence of significant influence by an entity is usually evidenced in one or more of the following ways: (a) representation on the board of directors or equivalent governing body of the investee; (b) participation in policy-making processes, including participation in decisions about dividends or o .....

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g policies of another entity (ie potential voting rights). The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other entities, are considered when assessing whether an entity has significant influence. Potential voting rights are not currently exercisable or convertible when, for example, they cannot be exercised or converted until a future date or until the occurrence of a future event. 8 In assessing wheth .....

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in the financial and operating policy decisions of that investee. The loss of significant influence can occur with or without a change in absolute or relative ownership levels. It could occur, for example, when an associate becomes subject to the control of a government, court, administrator or regulator. It could also occur as a result of a contractual arrangement. Equity method 10 Under the equity method, on initial recognition the investment in an associate or a joint venture is recognised a .....

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he investee s 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 (see Ind AS 1, Presentation of Financial Statements). 11 The recognition of income on the basis of distributions received may not be an adequate measure of the income earned by an investor on an investment in an associate .....

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ee. As a result, application of the equity method provides more informative reporting of the investor s net assets and profit or loss. 12 When potential voting rights or other derivatives containing potential voting rights exist, an entity s interest in an associate or a joint venture is determined solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights and other derivative instruments, unless paragraph 13 applies. 1 .....

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associates and joint ventures that are accounted for using the equity method. When instruments containing potential voting rights in substance currently give access to the returns associated with an ownership interest in an associate or a joint venture, the instruments are not subject to Ind AS 109. In all other cases, instruments containing potential voting rights in an associate or a joint venture are accounted for in accordance with Ind AS 109. 15 Unless an investment, or a portion of an inve .....

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method except when that investment qualifies for exemption in accordance with paragraphs 17-19. Exemptions from applying the equity method 17 An entity need not apply the equity method to its investment in an associate or a joint venture if the entity is a parent that is exempt from preparing consolidated financial statements by the scope exception in paragraph 4(a) of Ind AS 110 or if all the following apply: (a) The entity is a wholly-owned subsidiary, or is a partially-owned subsidiary of ano .....

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ganisation, for the purpose of issuing any class of instruments in a public market. 1[(d) The ultimate or any intermediate parent of the entity produces financial statements available for public use that comply with Ind ASs, in which subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with Ind AS 110. ] 5[18 When an investment in an associate or a joint venture is held by, or is held indirectly through, an entity that is a venture capital organisation .....

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nd, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure that portion of the investment in the associate at fair value through profit or loss in accordance with Ind AS 109 regardless of whether the venture capital organisation has significant influence over that portion of the investment. If the entity makes that election, the entity shall apply the equity method to any remaining portion of its investment in an associate that is not held th .....

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the disposal takes place, an entity shall account for any retained interest in the associate or joint venture in accordance with Ind AS 109 unless the retained interest continues to be an associate or a joint venture, in which case the entity uses the equity method. 21 When an investment, or a portion of an investment, in an associate or a joint venture previously classified as held for sale no longer meets the criteria to be so classified, it shall be accounted for using the equity method retro .....

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nations, and Ind AS 110. (b) If the retained interest in the former associate or joint venture is a financial asset, the entity shall measure the retained interest at fair value. The fair value of the retained interest shall be regarded as its fair value on initial recognition as a financial asset in accordance with Ind AS 109. The entity shall recognise in profit or loss any difference between: (i) the fair value of any retained interest and any proceeds from disposing of a part interest in the .....

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ehensive income by the investee would be reclassified to profit or loss on the disposal of the related assets or liabilities, the entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. For example, if an associate or a joint venture has cumulative exchange differences relating to a foreign operation and the entity discontinues the use of the equity method, the entity shall reclassify to profit or loss the gain .....

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apply the equity method, the entity shall reclassify to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be required to be reclassified to profit or loss on the disposal of the related assets or liabilities. Equity method procedures 26 Many of the procedures that are appropriate for the application of the equity method are similar to the consolidation pr .....

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hen an associate or a joint venture has subsidiaries, associates or joint ventures, the profit or loss, other comprehensive income and net assets taken into account in applying the equity method are those recognised in the associate s or joint venture s financial statements (including the associate s or joint venture s share of the profit or loss, other comprehensive income and net assets of its associates and joint ventures), after any adjustments necessary to give effect to uniform accounting .....

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or contributions of assets from the investor to its associate or its joint venture. The investor s share in the associate s or joint venture s gains or losses resulting from these transactions is eliminated. 29 When downstream transactions provide evidence of a reduction in the net realisable value of the assets to be sold or contributed, or of an impairment loss of those assets, those losses shall be recognised in full by the investor. When upstream transactions provide evidence of a reduction .....

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ntribution lacks commercial substance, the gain or loss is regarded as unrealised and is not recognised unless paragraph 31 also applies. Such unrealised gains and losses shall be eliminated against the investment accounted for using the equity method and shall not be presented as deferred gains or losses in the entity s consolidated balance sheet or in the entity s balance sheet in which investments are accounted for using the equity method. 31 If, in addition to receiving an equity interest in .....

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air value of the investee s identifiable assets and liabilities is accounted for as follows: (a) Goodwill relating to an associate or a joint venture is included in the carrying amount of the investment. Amortisation of that goodwill is not permitted. (b) Any excess of the entity s share of the net fair value of the investee s identifiable assets and liabilities over the cost of the investment is recognised directly in equity as capital reserve in the period in which the investment is acquired. .....

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nancial statements of the associate or joint venture are used by the entity in applying the equity method. When the end of the reporting period of the entity is different from that of the associate or joint venture, the associate or joint venture prepares, for the use of the entity, financial statements as of the same date as the financial statements of the entity unless it is impracticable to do so. 34 When, in accordance with paragraph 33, the financial statements of an associate or a joint ve .....

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of the reporting periods shall be the same from period to period. 35 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. 3[ 36 Except as described in paragraph 36A, 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 m .....

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t investment entity associate or joint venture to the investment entity associate s or joint venture s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which (a) the investment entity associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture first becomes a parent.] 37 If an associate or a .....

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an associate or a joint venture is the carrying amount of the investment in the associate or joint venture determined using the equity method together with any long-term interests that, in substance, form part of the entity s net investment in the associate or joint venture. For example, an item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, an extension of the entity s investment in that associate or joint venture. Such items may include .....

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ed to zero, additional losses are provided for, and a liability is recognised, only to the extent that the entity has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. If the associate or joint venture subsequently reports profits, the entity resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. Impairment losses 40 After application of the equity method, including recog .....

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t venture is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the net investment (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows from the net investment that can be reliably estimated. It may not be possible to identify a single, discrete event that caused the impairment. Rather the combined effect of several event .....

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relating to its associate s or joint venture s financial difficulty, granting to the associate or joint venture a concession that the entity would not otherwise consider; (d) it becoming probable that the associate or joint venture will enter bankruptcy or other financial reorganisation; or (e) the disappearance of an active market for the net investment because of financial difficulties of the associate or joint venture. 41B The disappearance of an active market because the associate s or join .....

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uments of the associate or joint venture includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the associate or joint venture operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment. 42 Because go .....

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its carrying amount, whenever application of paragraphs 41A-41C indicates that the net investment may be impaired. An impairment loss recognised in those circumstances is not allocated to any asset, including goodwill, that forms part of the carrying amount of the net investment in the associate or joint venture. Accordingly, any reversal of that impairment loss is recognised in accordance with Ind AS 36 to the extent that the recoverable amount of the net investment subsequently increases. In d .....

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al. Using appropriate assumptions, both methods give the same result. 43 The recoverable amount of an investment in an associate or a joint venture shall be assessed for each associate or joint venture, unless the associate or joint venture does not generate cash inflows from continuing use that are largely independent of those from other assets of the entity. Separate financial statements 44 An investment in an associate or a joint venture shall be accounted for in the entity s separate financi .....

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or differences, if any, between Indian Accounting Standard (Ind AS) 28, , and the corresponding International Accounting Standard (IAS) 28, , issued by the International Accounting Standards Board. Comparison with IAS 28, 1. Paragraph 35 of Ind AS 28 requires use of uniform accounting policies, unless, in case of an associate, it is impracticable, which IAS 28 does not provide. This change has been made because the investor does not have control over the associate, it may not be able to influenc .....

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eg, the term balance sheet is used instead of Statement of financial position . 8[4. Paragraphs 45 to 45D have not been included as these paragraphs relate to effective date and transition that are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 28, the paragraph numbers are retained in Ind AS 28.] ******************** Notes:- 1. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, " (d) The ultimate .....

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sociate or a joint venture has subsidiaries, associates or joint ventures, the profit or loss, other comprehensive income and net assets taken into account in applying the equity method are those recognised in the associate s or joint venture s financial statements (including the associate s or joint venture s share of the profit or loss, other comprehensive income and net assets of its associates and joint ventures), after any adjustments necessary to give effect to uniform accounting policies .....

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