Assiociate In Consoldated B/S & I/S

I understand how to treat parent and minority in the above but now getting lost in associate.

Any explantions would be great thanks :)


  • sdv
    sdv Registered Posts: 585
    Consolidation / associated companies

    IAS 28

    Do not consolidate assets and liabilities in Balance sheet or Income statement, therefore there is no minority treatment for an associate company. (The parent company is the minority in the associate company)

    Income statement

    There is hardly any thing to do in the income statement except for
    a- ignore the income form Associate company (dividends received) and
    b- replace it (in IS of Parent) with the share of profits of the Associate company after tax and before distribution of dividends.

    Balance Sheet

    If you do not consolidate the balance sheet and but show additional income (share of profit) from the associate, you are increasing your Equity part of the balance sheet. Ie your retained profits have been increased.

    Your balance sheet will not balance

    There fore in the Non-Current Assets part of Balance sheet you will have to increase the value of your investment in Associate by the share of profit from the Associate.

    Ie- original investment plus share of profit of Associate!

    Now the Balance sheet is BALANCED!

    The above explanation is for a simple Associate problem.

    What if the goodwill value of the Associate Company is impaired, as it is happening under the current economic climate?

    You will need to work out the goodwill of the Associate Company just as you would do for the subsidiary company as at the acquisition date.

    Now in the Parent’s Income statement you would add the share of the profit from Associate and also write off the impairment of the goodwill to reduce the profits.

    In the Balance sheet the value of the investment in the associate company will be

    Original investment plus share of profit of (A) less write off the goodwill impairment.
  • A-Vic
    A-Vic Registered Posts: 6,970
    Thanks for the reply am going to relook at it and see if i can have another go :)
  • A-Vic
    A-Vic Registered Posts: 6,970
    Sorry still struggling :)
  • Steve Collings
    Steve Collings Registered Posts: 997

    I hope I can help with this for you. I did a worked example for one of our trainees who was also struggling with investments in associates so I produced a step-by-step process.

    Step 1
    Once you have established you have an associate (usually when you have more than 20% of the voting rights but less than 51%). Once you have established this then you should use the equity method of accounting for the associate.

    Step 2
    You then bring the associate into the statement of financial position at cost. If you have bought 3,000 shares at $5 per share then the investment is $15,000 so the entries will be:

    DR investments (non current assets)
    CR cash/bank

    Step 3
    At the reporting date determine if there has been any change in the value of your investment. So in the above example assume the share price has risen from $5 to $6 this means your investment has increased by $1 per share so the investment has gone up by ($1 x 3,000 shares) = $3,000. You would then record this gain as 'income from associate' in the statement of comprehensive income by:

    DR investments (non current assets)
    CR income from investments (statement of comp income)

    If it was the other way round and the share price had fallen by $1 then you would credit investments (non current assets) and debit loss on investments.

    Step 4
    Deal with any dividends from the associate. If the associate pays you a dividend then this means their assets decrease so in turn your investment also decreases so rather than taking the dividend to the statement of comprehensive income, you would offset the credit against the cost of the investment, hence:

    DR cash
    CR investments (non current assets)

    Hope that heelps.


  • A-Vic
    A-Vic Registered Posts: 6,970
    Cheers steve we were doing the tasm method at college and am just not getting it i was fine with the parent and subsidary but then when assiociate got thrown in its thrown me
  • Steve Collings
    Steve Collings Registered Posts: 997
    A-Vic wrote: »
    Cheers steve we were doing the tasm method at college

    What's the tasm method?
  • A-Vic
    A-Vic Registered Posts: 6,970
    Do a table method headings

    Total At Aquisition Since aqu Minority

    Then put in share, retained earnings (at then since) then add for parent share of net assets, consideration to work out goodwill then complete B/S
  • Steve Collings
    Steve Collings Registered Posts: 997
    I see.

    When you were on my revision day that was a similar style table that I did to illustrate the consolidated balance sheet. I think it is also in the course notes I gave you.


  • A-Vic
    A-Vic Registered Posts: 6,970
    Yeah having a full reading session this week to go over everything so far and work on examples in the book it will stick.

    Thanks as ever steve :)
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