hkas 28 investments in associates. investments in associates scope what is associate? application...

HKAS 28 HKAS 28

Investments in Investments in AssociatesAssociates

Investments in Investments in AssociatesAssociates

ScopeScope What is associate?What is associate? Application of Equity MethodApplication of Equity Method Impairment LossesImpairment Losses Separate Financial StatementsSeparate Financial Statements DisclosureDisclosure

ScopeScope HKAS 28 Investments in Associates shall be applied in accounting for inveHKAS 28 Investments in Associates shall be applied in accounting for inve

stments in associates.stments in associates. However, it does not apply to investments in associates held by :However, it does not apply to investments in associates held by :

a) a) venture capital organisationsventure capital organisations, or, or

b) b) mutual funds, unit trusts and similar entitiesmutual funds, unit trusts and similar entities including investment-linked including investment-linked insurance fundsinsurance funds

that upon initial recognitionthat upon initial recognition

- are - are designated as at fair value through profit or lossdesignated as at fair value through profit or loss or or

- are - are classified as held for tradingclassified as held for trading and and

accounted for in accordance with HKAS 39 Financial Instruments: Recogniaccounted for in accordance with HKAS 39 Financial Instruments: Recognition and Measurement.tion and Measurement.

Such investments shall be measured at fair value in accordance with HKASuch investments shall be measured at fair value in accordance with HKAS 39, with changes in fair value recognised in profit or loss in the period of S 39, with changes in fair value recognised in profit or loss in the period of change.change.

What is Associate?What is Associate?

An associate is an entity over which the investor has An associate is an entity over which the investor has significant infsignificant influenceluence and that is neither a subsidiary nor an interest in a joint ven and that is neither a subsidiary nor an interest in a joint venture.ture.

Significant influenceSignificant influence is the power to is the power to participateparticipate in the financial and in the financial and operating policy decisions of the investee but is not control or joint operating policy decisions of the investee but is not control or joint control over those policies.control over those policies.

A significant influence A significant influence is presumedis presumed• For For holding 20% or moreholding 20% or more of the voting power of the investee, unle of the voting power of the investee, unle

ss it can be clearly demonstrated that this is not the case.ss it can be clearly demonstrated that this is not the case.

NoNo significant influence significant influence is presumedis presumed• For For holding less than 20%holding less than 20% of the voting power of the investee, unl of the voting power of the investee, unl

ess such influence can be clearly demonstrated.ess such influence can be clearly demonstrated.

What is Associate?What is Associate? The existence of significant influence by an investor iThe existence of significant influence by an investor i

s usually evidenced in one or more of the following ws usually evidenced in one or more of the following ways:ays:

representation on the boardrepresentation on the board of directors or equivalent governin of directors or equivalent governing body of the investee;g body of the investee;

participation in policy-making processesparticipation in policy-making processes, including participation , including participation in decisions about dividends or other distributions;in decisions about dividends or other distributions;

material transactionsmaterial transactions between investor and the investee; between investor and the investee; interchange of managerial personnelinterchange of managerial personnel; or; or provision of essential technical informationprovision of essential technical information..

Potential voting rights should also be consideredPotential voting rights should also be considered


An entity loses significant influence over an investeeAn entity loses significant influence over an investee

When it When it loses the power to participateloses the power to participate in the financial and operatin in the financial and operating policy decisions of that investee.g policy decisions of that investee.

The loss of significant influence can occur with or withoThe loss of significant influence can occur with or without a change in absolute or relative ownership levels.ut a change in absolute or relative ownership levels.

It could occur, for example, when an associate becomes subject tIt could occur, for example, when an associate becomes subject to the control of a government, court, administrator or regulator.o the control of a government, court, administrator or regulator.

It could also occur as a result of a contractual agreement.It could also occur as a result of a contractual agreement.


When an investor ceases to have significant influence When an investor ceases to have significant influence over an associate, HKAS 28 provides that,over an associate, HKAS 28 provides that,

It shall discontinue the use of the equity method; instead, it shall It shall discontinue the use of the equity method; instead, it shall account for the investment in accordance with HKAS 39 “Financial account for the investment in accordance with HKAS 39 “Financial Instruments: Recognition and Measurement” from the date it Instruments: Recognition and Measurement” from the date it ceases to have significant influence, provided the associate does ceases to have significant influence, provided the associate does not become a subsidiary or a joint venture as defined in HKAS 31 not become a subsidiary or a joint venture as defined in HKAS 31 “Interests in Joint Ventures”;“Interests in Joint Ventures”;

The carrying amount of the investment at the date that it ceases to The carrying amount of the investment at the date that it ceases to be an associate shall be regarded as its cost on initial be an associate shall be regarded as its cost on initial measurement as a financial asset in accordance with HKAS 39.measurement as a financial asset in accordance with HKAS 39.

Application of Equity Application of Equity MethodMethod

An investment in an associate shall be accounted for using An investment in an associate shall be accounted for using the Equity Methodthe Equity Method, except when:, except when:

an investment is classified as an investment is classified as held for sale in accordance held for sale in accordance with HKFRS 5 “Non-current Assets Held for Sale and with HKFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”;Discontinued Operations”; in which case, it shall be in which case, it shall be accounted for in accordance with HKFRS 5accounted for in accordance with HKFRS 5

the exception in HKAS 27, allowing a parent that also has the exception in HKAS 27, allowing a parent that also has an investment in an associate not to present consolidated an investment in an associate not to present consolidated financial statements, applies; or financial statements, applies; or


all of the following apply:all of the following apply:• the investor is a the investor is a wholly-owned subsidiarywholly-owned subsidiary, or is a , or is a partially-owpartially-ow

ned subsidiaryned subsidiary of another entity and its other owners, and d of another entity and its other owners, and do not object to, the investor not applying the equity method;o not object to, the investor not applying the equity method;

• the investor’s debt or equity instruments are not traded in a the investor’s debt or equity instruments are not traded in a public market;public market;

• the investor the investor did not file, nor is it in the process of filingdid not file, nor is it in the process of filing, its fin, its financial statements for ancial statements for issuing any class of securities in a publissuing any class of securities in a public marketic market; and; and

• the the ultimate or any intermediate parentultimate or any intermediate parent of the investor produ of the investor produces ces consolidated financial statements available for public usconsolidated financial statements available for public usee that comply with HKFRSs/IFRSs that comply with HKFRSs/IFRSs..


Under the equity method:Under the equity method:

the investment in an associate is initially recognised at the investment in an associate is initially recognised at cost;cost;

the carrying amount is increased or decreased to recothe carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the ingnise the investor’s share of the profit or loss of the investee after the date of acquisition;vestee after the date of acquisition;

the investor’s share of profit or loss of investee is recothe investor’s share of profit or loss of investee is recognised in the investor’s profit or loss; andgnised in the investor’s profit or loss; and

distributions received (e.g. dividend) from an investee distributions received (e.g. dividend) from an investee reduce the carrying amount of the investment.reduce the carrying amount of the investment.


However:However:

In HKAS 28, if an investor’s share of losses of an associIn HKAS 28, if an investor’s share of losses of an associate ate equals or exceedsequals or exceeds its interest in the associate, the in its interest in the associate, the investor vestor discontinues recognising its share of further lossediscontinues recognising its share of further lossess..

If the associate subsequently reports profits, the investor If the associate subsequently reports profits, the investor resumes recognising its share of those profits resumes recognising its share of those profits only after ionly after its share of the profits has made up for the share of the lots share of the profits has made up for the share of the losses not recognisedsses not recognised..


The interest in an associate includes:The interest in an associate includes:

the carrying amount of the investment in the asthe carrying amount of the investment in the associate under the equity method together withsociate under the equity method together with

any long-term interests that, in substance, form any long-term interests that, in substance, form part of the investor’s net investment in the assopart of the investor’s net investment in the associate.ciate.


Examples of long-term interests form part of the investor’s net investmeExamples of long-term interests form part of the investor’s net investment:nt:

An item for which settlement is neither planned or likely to occur in the fAn item for which settlement is neither planned or likely to occur in the foreseeable future is, in substance, an extension of the entity’s investmeoreseeable future is, in substance, an extension of the entity’s investment in that associate.nt in that associate.

• Such items may include:Such items may include: - Preferred shares- Preferred shares - Long-term receivables or loans- Long-term receivables or loans

• But do not include:But do not include: - Trade receivables, trade payables or- Trade receivables, trade payables or - Any long term receivables for which adequate collateral exists, suc- Any long term receivables for which adequate collateral exists, such as secured loansh as secured loans


After the investor’s interest is reduced to zero, additionAfter the investor’s interest is reduced to zero, additional losses are provided for, and a liability is recognised, al losses are provided for, and a liability is recognised, only to the extend that the investor has incurred legal oonly to the extend that the investor has incurred legal or constructive obligations or made payments on behalf r constructive obligations or made payments on behalf of the associatesof the associates..

The The other financial interestsother financial interests in the investee (e.g. trade r in the investee (e.g. trade receivables) are to be subjected to eceivables) are to be subjected to impairment testimpairment test..


On acquisition of the associate, any difference On acquisition of the associate, any difference between the cost of the investment and the invbetween the cost of the investment and the investor’s share of the associate’s net assets may estor’s share of the associate’s net assets may be categorised into:be categorised into:

(a) goodwill; and(a) goodwill; and

(b) fair value adjustments.(b) fair value adjustments.


GoodwillGoodwill

- - included in carrying amount of the investmentincluded in carrying amount of the investment

- - amortisationamortisation of that goodwill is of that goodwill is not permittednot permitted and is t and is therefore not included in the determination of the invesherefore not included in the determination of the investor’s share of the associate’s profits or lossestor’s share of the associate’s profits or losses

- any excess of the investor’s share of the associate’s - any excess of the investor’s share of the associate’s net assets over the cost of investment is excluded fronet assets over the cost of investment is excluded from the carrying amount of the investment and is insteam the carrying amount of the investment and is instead recognised as income in the determination of the invd recognised as income in the determination of the investor’s share of the associate’s profit or loss in the perestor’s share of the associate’s profit or loss in the period in which the investment is acquirediod in which the investment is acquired


Fair value adjustmentFair value adjustment

- Not to be reflected in the assets and liabilities of the Not to be reflected in the assets and liabilities of the consolidated balance sheet.consolidated balance sheet.

- Appropriate adjustments to the investor’s share of the Appropriate adjustments to the investor’s share of the associate’s profit or loss after acquisition are to be associate’s profit or loss after acquisition are to be made to account, for example, for depreciation of the made to account, for example, for depreciation of the depreciable assets based on their fair values at the depreciable assets based on their fair values at the acquisition date.acquisition date.


Financial Statements of Investor and Financial Statements of Investor and AssociateAssociate

The The most recent available financial statementsmost recent available financial statements of the of the associates are used by the investor in applying the associates are used by the investor in applying the equity method.equity method.

When the When the reporting datesreporting dates for the investor and the for the investor and the associate are associate are different different - the associate prepares, for the use of the investor, - the associate prepares, for the use of the investor, financial statements as of the same date as the financial statements as of the same date as the financial statements of thefinancial statements of the investor unless it is investor unless it is impracticable to do so.impracticable to do so.


When the financial statements of an associate used in When the financial statements of an associate used in applying the equity method are prepared as of a applying the equity method are prepared as of a different reporting date from that of the investordifferent reporting date from that of the investor

- - adjustments shall be madeadjustments shall be made for the effects of for the effects of significant transactions or events that occur between significant transactions or events that occur between that date and the date of the investor’s financial that date and the date of the investor’s financial statements.statements.

In any case, the difference between the reporting date In any case, the difference between the reporting date of the associates and that of the investor shall be of the associates and that of the investor shall be no no more than 3 monthsmore than 3 months..


The length of the reporting periods and any diffThe length of the reporting periods and any difference in the reporting dates shall be the erence in the reporting dates shall be the same same from period to periodfrom period to period..

The investor’s financial statements shall be preThe investor’s financial statements shall be prepared pared using uniform accounting policiesusing uniform accounting policies for like for like transactions and events in similar circumstancetransactions and events in similar circumstances.s.

Impairment LossesImpairment Losses

After application of the equity method including recognisAfter application of the equity method including recognising the associate’s losses,ing the associate’s losses,

- the investor applies - the investor applies the requirements of HKAS 39 to dthe requirements of HKAS 39 to determine whether it is necessary to recognise any additietermine whether it is necessary to recognise any additional impairment lossonal impairment loss with respect to the investor’s net in with respect to the investor’s net investment in the associate.vestment in the associate.

- the investor also applies - the investor also applies the requirements of HKAS 39 the requirements of HKAS 39 to determine whether any additional impairment loss is rto determine whether any additional impairment loss is recognisedecognised with respect to the with respect to the investor’s interest in the ainvestor’s interest in the associatessociate that does not constitute part of the net investmthat does not constitute part of the net investment and the amount of that impairment lossent and the amount of that impairment loss..

Impairment Losses Impairment Losses

Because Because goodwillgoodwill included in the carrying amount of an in included in the carrying amount of an investment in an associate is not separately recognised,vestment in an associate is not separately recognised,- it is - it is not tested for impairment separatelynot tested for impairment separately by applying the requirement by applying the requirements for impairment testing goodwill in HKAS 36 s for impairment testing goodwill in HKAS 36 Impairment of AssetsImpairment of Assets..

Instead, Instead, the entire carrying amount of the investment is tethe entire carrying amount of the investment is tested under HKAS 36sted under HKAS 36 for impairment, by comparing: for impairment, by comparing:- its - its recoverable amountrecoverable amount (higher of value in use and fair value less co (higher of value in use and fair value less costs to sell) withsts to sell) with- its - its carrying amountcarrying amount..

Impairment Losses Impairment Losses

In determining the value in use of the investment, an entity In determining the value in use of the investment, an entity estimates:estimates:a) its a) its share of the present value of the estimated future cash share of the present value of the estimated future cash flows expected to be generated by the associatesflows expected to be generated by the associates,,- including the cash flows from the operations of the associate - including the cash flows from the operations of the associate and the proceeds on the ultimate disposal of the investment; orand the proceeds on the ultimate disposal of the investment; orb) the b) the present value of the estimated future cash flowspresent value of the estimated future cash flows expected expected to arise from to arise from dividendsdividends to be received from the investment and to be received from the investment and from the ultimate disposal.from the ultimate disposal.

Under appropriate assumptions, both methods give the same Under appropriate assumptions, both methods give the same result.result.

The recoverable amount of an investment in an associate is The recoverable amount of an investment in an associate is assessed for each associate,assessed for each associate,- unless the associate does not generate cash inflows from - unless the associate does not generate cash inflows from continuing use that are largely independent of those from other continuing use that are largely independent of those from other assets of the entity.assets of the entity.

Separate Financial Separate Financial StatementsStatements

An investment in an associate shall be An investment in an associate shall be accounted for in the investor’s separate accounted for in the investor’s separate financial statements in accordance with the financial statements in accordance with the requirements on separate financial requirements on separate financial statements of HKAS 27.statements of HKAS 27.

DisclosureDisclosure

The following disclosures shall be made:The following disclosures shall be made:

a) a) fair valuefair value of investments in associates for which of investments in associates for which there are pubthere are published price quotations;lished price quotations;

b) b) summarised financial information of associatessummarised financial information of associates, including the , including the aggregated amounts of assets, liabilities, revenues and profit or aggregated amounts of assets, liabilities, revenues and profit or loss;loss;

c) c) the reasons whythe reasons why the presumption that an investor does not ha the presumption that an investor does not have significant influence is overcome if the investor holds, directly ve significant influence is overcome if the investor holds, directly or indirectly through subsidiaries, or indirectly through subsidiaries, less than 20%less than 20% of the voting or of the voting or potential voting power of the investee but concludes that it potential voting power of the investee but concludes that it has shas significant influenceignificant influence;;


The following disclosures shall be made:The following disclosures shall be made:

d) d) the reasons whythe reasons why the presumption that an investor has signifi the presumption that an investor has significant influence is overcome if the investor holds, directly or indircant influence is overcome if the investor holds, directly or indirectly through subsidiaries, ectly through subsidiaries, 20% or more20% or more of the voting or potenti of the voting or potential voting power of the investee but concludes that it al voting power of the investee but concludes that it does not hdoes not have significant influenceave significant influence;;

e) e) the reporting datethe reporting date of the financial statements of an associate, of the financial statements of an associate, when such financial statements are used in applying the equit when such financial statements are used in applying the equity method and are as of a reporting date or for a period that is dy method and are as of a reporting date or for a period that is different from that of the investor, and the reason for using a diffifferent from that of the investor, and the reason for using a different reporting date or different period;erent reporting date or different period;


f) the nature and extend of f) the nature and extend of any significant restrictionsany significant restrictions (e.g. resulti (e.g. resulting from borrowing arrangements or regulatory requirements) on tng from borrowing arrangements or regulatory requirements) on the ability of associates to transfer funds to the investor in the forhe ability of associates to transfer funds to the investor in the form of cash dividends, or repayment of loans or advances;m of cash dividends, or repayment of loans or advances;

g) g) the unrecognised share of lossesthe unrecognised share of losses of an associate, both for the of an associate, both for the period and cumulatively, if an investor has discontinued recognitiperiod and cumulatively, if an investor has discontinued recognition of its share of losses of an associate;on of its share of losses of an associate;

h) the h) the fact that an associate is not accounted for using the equity fact that an associate is not accounted for using the equity methodmethod in accordance with HKAS 28; and in accordance with HKAS 28; and

i) summarised financial information of associates, either individuali) summarised financial information of associates, either individually or in groups, that are not accounted for using the equity metholy or in groups, that are not accounted for using the equity method, including the amounts of total assets, total liabilities, revenues d, including the amounts of total assets, total liabilities, revenues and profit or loss.and profit or loss.


Investments in associates accounted for using the eqInvestments in associates accounted for using the equity method shall be uity method shall be classified as non-current assetsclassified as non-current assets..

The investor’s The investor’s share of the profit or lossshare of the profit or loss of such asso of such associates, and the carrying amount of those investments, ciates, and the carrying amount of those investments, shall be shall be seperately disclosedseperately disclosed..

The investor’s The investor’s share of any discontinued operationsshare of any discontinued operations o of such associates shall also be f such associates shall also be separately disclosedseparately disclosed..


The investor’s The investor’s share of changes recognised directly in tshare of changes recognised directly in the associate’s equityhe associate’s equity shall be shall be recognised directly in eqrecognised directly in equityuity by the investor and by the investor and shall be disclosedshall be disclosed in the statem in the statement of changes in equity required by HKAS 1 Presentatient of changes in equity required by HKAS 1 Presentation of Financial Statements.on of Financial Statements.

In accordance with HKAS 37 Provisions, Contingent LiIn accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets, the investor shall discloabilities and Contingent Assets, the investor shall disclose:se:a) a) its share of the contingent liabilitiesits share of the contingent liabilities of an associate incurred join of an associate incurred jointly with other investors; andtly with other investors; and

b) b) those contingent liabilitiesthose contingent liabilities that arise because the investor is sev that arise because the investor is severally liable for all or part of the liabilities of the associate.erally liable for all or part of the liabilities of the associate.

Thank you!Thank you!

謝謝！謝謝！

hkas 28 investments in associates. investments in associates scope what is associate? application...

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