Library / Technical Accounting Manual: IFRS, IAS and Ind AS Equivalents
IAS 28 - Investments in Associates and Joint Ventures
Indian equivalent: Ind AS 28 - Investments in Associates and Joint Ventures
Objective and scope
IAS 28 explains how to account for investments where you have significant influence but not control - an associate - and for joint ventures, using the equity method, which sits between simply holding an investment and fully consolidating a subsidiary.
Core principle
If you own enough of another company to influence it but not control it (typically 20–50%), you don't consolidate it line-by-line, but you can't ignore its performance either. The equity method is the middle path: start with cost, then increase or decrease your investment by your share of the associate's profits, losses and dividends. |
Defined terms and technical terminology
Term | Technical meaning |
|---|---|
Associate | An entity over which the investor has significant influence - usually 20% to 50% of voting power. |
Significant influence | The power to participate in financial and operating policy decisions - but not control them. |
Joint venture | A joint arrangement where parties with joint control have rights to the net assets of the arrangement. |
Equity method | Investment recorded at cost, then adjusted for the investor's share of the investee's post-acquisition profits/losses; dividends reduce the carrying amount. |
Application and worked illustrations
The equity method mechanics
Under the equity method you record the investment initially at cost. Each period you add your share of the associate's profit (which also goes to your own profit) and subtract your share of its losses. When the associate pays you a dividend, you reduce the investment carrying amount (the dividend is a return of value already recognised, not new income). Your share of the associate's OCI is also picked up in your OCI.
Worked example
InvestCo buys 30% of AssocCo for ₹50,00,000 - enough for significant influence, so AssocCo is an associate. In the year, AssocCo earns a profit of ₹20,00,000 and pays total dividends of ₹5,00,000. InvestCo's share of profit = 30% × ₹20,00,000 = ₹6,00,000 (added to its investment and its profit). Its share of dividends = 30% × ₹5,00,000 = ₹1,50,000 (reduces the investment). Closing carrying amount = 50,00,000 + 6,00,000 − 1,50,000 = ₹54,50,000.
Journal entry - Recognise share of associate's profit | ||
|---|---|---|
Account | Debit (₹) | Credit (₹) |
Investment in associate | 6,00,000 | |
Share of profit of associate (P&L) | 6,00,000 | |
Journal entry - Receive dividend from associate | ||
|---|---|---|
Account | Debit (₹) | Credit (₹) |
Bank | 1,50,000 | |
Investment in associate | 1,50,000 | |
When losses exceed the investment
If your share of losses reduces the investment to zero, you generally stop recognising further losses (unless you have guaranteed the associate's obligations), because you can't lose more than you put in.
Common mistake: recording dividends from an associate as income. Under the equity method the dividend reduces the investment - the income was already recognised via your share of profit. |
IND AS LINK Ind AS 28 aligns with IAS 28 - the equity method for associates (significant influence) and joint ventures (joint control), consistent with Ind AS 111 on joint arrangements. |
Further worked illustrations
Extra numeric example - associate makes a loss
InvestCo owns 25% of AssocCo (carrying amount ₹30,00,000). This year AssocCo makes a loss of ₹40,00,000. InvestCo's share = 25% × ₹40,00,000 = ₹10,00,000, reducing the investment to ₹20,00,000 and reducing InvestCo's own profit by ₹10,00,000. The equity method captures the bad news as faithfully as the good.
Journal entry - Recognise share of associate's loss | ||
|---|---|---|
Account | Debit (₹) | Credit (₹) |
Share of loss of associate (P&L) | 10,00,000 | |
Investment in associate | 10,00,000 | |
INDIAN REGULATORY CONTEXT Many Indian infrastructure and telecom projects are run as joint ventures. Under Ind AS 28, the venturer uses the equity method - a change from older Indian GAAP (AS 27), which allowed proportionate consolidation. So a company that once added its share of each JV asset and liability line-by-line now shows a single 'investment in JV' line. |
TECHNICAL EDGE CASE If InvestCo's share of losses would push the investment below zero, it stops recognising further losses once the carrying amount hits nil (and any long-term interest, like loans to the associate, is written down first). It doesn't keep booking losses - unless it has a legal or constructive obligation to fund the associate. Unrecognised losses are tracked and offset against future profits before the investment starts rising again. |
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