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Investments in Associates and Joint Ventures

Ind AS - 028 - B. Indian Accounting Standards (Ind AS) - Companies Law - 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 the equity method when accounting for . Scope .....

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ose 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 is an arrangement of which two or more partie .....

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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 financial statements subsidiary. Significant influen .....

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y 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 other distributions; (c) material transactions .....

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ing 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 whether potential voting rights contribute to signi .....

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ns 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 at cost, and the carrying amount is increased o .....

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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 or a joint venture because the distributions .....

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hod 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. 13 In some circumstances, an entity has, in sub .....

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ed 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 investment, in an associate or a joint venture is .....

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or 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 another entity and its other owners, including th .....

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ss 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. ] 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, or a mutual fund, unit trust and similar entit .....

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ciate 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 through a venture capital organisation. Classification as held for sale 20 An entity shall apply Ind AS 105 to an investment, or a portion of an investment, .....

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ined 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 retrospectively as from the date of its classification as held for sale. Financial statements for the periods since classification as held for sale shall be ame .....

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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 associate or joint venture; and (ii) the carrying amount of the investment at the date the equity method was discontinued. (c) When an entity discontinues .....

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ain 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 or loss that had previously been recognised in other comprehensive income in relation to the foreign operation. 24 If an investment in an associate become .....

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prehensive 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 procedures described in Ind AS 110. Furthermore, the concepts underlying the procedures used in accounting for the acquisition of a subsidiary are also adopt .....

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o 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 (see paragraphs 35-36A). ] 28 Gains and losses resulting from upstream and downstream transactions between an entity (including its consolidated s .....

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ses 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 in the net realisable value of the assets to be purchased or of an impairment loss of those assets, the investor shall recognise its share in those losses. .....

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ains 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 an associate or a joint venture, an entity receives monetary or non-monetary assets, the entity recognises in full in profit or loss the portion of the ga .....

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cluded 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. Appropriate adjustments to the entity s share of the associate s or joint venture s profit or loss after acquisition are made in order to account, for exam .....

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ty 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 venture used in applying the equity method are prepared as of a date different from that used by the entity, adjustments shall be made for the effects of sig .....

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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 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 .....

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enture has outstanding cumulative preference shares that are held by parties other than the entity and are classified as equity, the entity computes its share of profit or loss after adjusting for the dividends on such shares, whether or not the dividends have been declared. 38 If an entity s share of losses of an associate or a joint venture equals or exceeds its interest in the associate or joint venture, the entity discontinues recognising its share of further losses. The interest in an assoc .....

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ce shares and long-term receivables or loans, but do not include trade receivables, trade payables or any long-term receivables for which adequate collateral exists, such as secured loans. Losses recognised using the equity method in excess of the entity s investment in ordinary shares are applied to the other components of the entity s interest in an associate or a joint venture in the reverse order of their seniority (ie priority in liquidation). 39 After the entity s interest is reduced to ze .....

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he associate s or joint venture s losses in accordance with paragraph 38, the entity applies paragraphs 41A-41Cto determine whether it is any objective evidence that its net investment in the associate or joint venture is impaired. 41 The entity applies the impairment requirements in Ind AS 109 to its other interests in the associate or joint venture that are in the scope of Ind AS 109 and that do not constitute a part of the net investment. 41A The net investment in an associate or joint ventur .....

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ve caused the impairment. Losses expected as a result of future events, no matter how likely, are not recognised. Objective evidence that the net investment is impaired includes observable data that comes to the attention of the entity about the following loss events: (a) significant financial difficulty of the associate or joint venture; (b) a breach of contract, such as a default or delinquency in payments by the associate or joint venture; (c) the entity, for economic or legal reasons relatin .....

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e s equity or financial instruments are no longer publicly traded is not evidence of impairment. A downgrade of an associate s or joint venture s credit rating or a decline in the fair value of the associate or joint venture, is not of itself, evidence of impairment, although it may be evidence of impairment when considered with other available information. 41C In addition to the types of events in paragraph 41A, objective evidence of impairment for the net investment in the equity instruments o .....

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hat forms part of the carrying amount of the net investment in an associate or a joint venture is not separately recognised, it is not tested for impairment separately by applying the requirements for impairment testing goodwill in Ind AS 36, Impairment of Assets. Instead, the entire carrying amount of the investment is tested for impairment in accordance with Ind AS 36 as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carr .....

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ng the value in use of the net investment, an entity estimates: (a) its share of the present value of the estimated future cash flows expected to be generated by the associate or joint venture, including the cash flows from the operations of the associate or joint venture and the proceeds from the ultimate disposal of the investment; or (b) the present value of the estimated future cash flows expected to arise from dividends to be received from the investment and from its ultimate disposal. Usin .....

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ments in accordance with paragraph 10 of Ind AS 27. Appendix 1 Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major 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 .....

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able assets and liabilities over the cost of investment in capital reserve whereas in IAS 28, it is recognised in profit or loss. 3. Different terminology is used, as used in existing laws, eg, the term balance sheet is used instead of Statement of financial position . - Notes:- 1. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, " (d) The ultimate or any intermediate parent of the entity produces consolidated financial statements available for public u .....

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