Question

Accounting for associates and joint ventures – the equity method.

Question: Contrast how an investor's financial statement would differ between assessing that they have control over the invite, and assessing that they have significant influence. In your response explain 3 key accounting differences, including how the recognition and realisation of goodwill would differ between the 2 methods.

• Please explain it in detail.

• Through AASB if necessary.

Answer 1

Control over the Invite means Full Power of the Investor over Investee on deciding financial and operating policies of the Investee. It means full control.

Where significant influence denotes Investor's influence over their financial or operating policies but not of full control.

IFRS or AASB prescribes detailed explanations in determining the nature of investment and management participation leading to either control or significant infuence.

Determination of either control or significant influence will leadto different accounting treatments in the books of the Investor.

Key Accounting Differences:

Accounting Difference	Control	Significant Influence
Accounting Requirements	AASB 10.19 & 10.20 A Parent shall pepare conolidated financial statements and Consolidation of an Investee shall begin from the date the investor obtains the control over investee and ceases when investor loses the Control. After acquisition date, All income, expenses, assets and liabilities are consolidated after adjusting for inter company balances. Income reported is combined income after adjusting for noncontrolling interests.	AASB 128.16 An entiry with signficant influence over an investee shall account for its investment in an associate or joint venture using the equity method. Share of Investor in all subsequent incomes of associate or joint venture is added to the carrying amount of investment and any recceipt in the form of dividends from associate or joint venture is deducted from thecarrying amount of the investment.
Non-Controlling Interests	10.22 A parent shall present non-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the owners of the paarent.	No such requirement is necessary as investment in an associate or joint venture is reported under equity method in the fiinancial statements of the parent and no requirement for consolidated statement of financial position.
Recognition and Realisation of Goodwill	Offsetting the carrying ammount of the parent's investment in subsidiary and portion of the Equity will result into Goodwill which will be recognised in Parent's financial statements. 3.32 The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below: (a) the aggregate of: (i) the consideration transferred measured in accordance with this Standard, which generally requires acquisition-date fair value (ii) the amount of any non-controlling interest in the acquiree measured in accordance with this Standard; and (iii) in a business combination achieved in stages , the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree. (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this Standard. If this difference is negative, the investment is considered as bargain purchase and is reoprted in profit or loss in the period of acquisition. Goodwill is treated as Intanzible asset and tested for iimpairment according to IAS 36 / AASB 136. Acquisition-related costs are accounted as expenees.	128.32 An investment is accounted for using the equity method from the date on which it becomes an associate or a joint venture. On acquisition of the investment, any difference between the cost of the investment and the entity’s share of the net fair value of the investee’s identifiable assets and liabilities is accounted for as follows: Goodwill is included in the carrying amount of the investment and amortisation of goodwill is not permitted and any excess of the investor's share of the fair value ofthe inveestee's identifiable assets & liabilities over the cost of the cost of the iinvestment as included as income in the determination of the investor's share of the associate or jv's profit or loss in the period in which the investment is acqured.