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Associates and Joint Ventures - Coggle Diagram
Associates and Joint Ventures
Joint Investment
Collective Control and Joint Control
Joint Control
Is the contractually agreed sharing of Control over an arrangement, which exists only when decisions about relevant activities require the unanimous consent of the parties sharing control
Collective Control
Collective Control of an arrangement exists when
all the parties must act together to direct activities that significantly affect the returns of the arrangement.
If collective control exists, it must be assessed whether joint control exists
Two types of Joint Arrangements
Joint Venture
Is a joint arrangement whereby the parties that have joint Control of the arrangement have rights to the Net Assets of the Arrangements. These parties are called joint ventures
Joint Operation
Is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement. These parties are called joint operations.
What is an investment in a joint arrangement
A joint Arrangement is an
arrangement where two or more parties exercise joint Control
that is
Contractually agreed
upon on sharing of Control
Associates
Significant Influence:
Is the power participate in the financial and operational policy decisions of the investee but is not control or joint control over these policies
Significant influence may be present through various forms including:
Participation in policy-making processes, including participation in decisions about dividends
or other distributions
Material transactions between investor and investee
Representation on the board of directors
Example:
We would need to determine if the company would have significant influence or joint control over S
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The information provided states that the terms of the agreement include the company will have representation on the board of directors as :check: well as participation in policy-making processes, such as the approval of dividends :check:
A company holds 30% of the shareholding in S. As this is more than 20% but less than 49%. :check: The investemnt in S could either be an investment in an Associate or a joint Venture.
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These factors constitute evidence of significant influence
Therefore the acquisition of S shall be accounted for as an instrument in an associate in the accounting records of the company.
Investment in an Associate:
This is an entity in which the investor has significant influence and that is neither a subsidiary nor a joint venture
Measurement of Associates
Initial Measurement
In terms of IAS 27 Separate Financial Statements of the PC, the investment will initially be recorded at Cost or at Fair Value in terms of IFRS 9
In terms of IAS 28 Investment in Associates and Joint Ventures, investment in associates must be accounted for using the equity method.
Subsequent Measurement
Subsequently, in the group Financial Statements, the investments will be carried at the Initial Recognition Price (Cost/Consideration) plus PC's share of the post-acquisition net assets (or since acquisition reserves/changes in equity since acquisition) Less any dividends rececied from the Associate
Potential voting rights
All currently
exercisable or presently convertible instruments need to be considered in establishing whether an investor has contro
l or significant influence over an investee
Therefore, when the potential voting rights are taken into account, Tele Rings potentially owns 25% (15% + 10%) of voting rights which may represent significant influence.
Tele Rings will also be involved in the policy-making processes of Cell Buzz but will not have power to make the ultimate decisions and therefore will not have control over Cell Buzz
PC has an option to acquire a further 10% of S ordinary share capital and this option is presently exercisable and in the money
PC acquired 15% of shares in S which does not represent significant influence as it is less than 20% of the decision making rights