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INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

Equity accounting

• The equity method is an accounting method that initially recognises the
investment at cost and thereafter the investment is adjusted for any
post-acquisition changes in the investee’s (associates) net assets (or, as
net assets are equal to equity, the equity of the investee).

• What is the starting point for equity accounting?
• 100% of Investor plus 0% of Associate

• The trial balance of the associate is NOT added to the parent as there is no
control

• What needs to be in the end point?
• Investor’s actual % share of associate’s

• The increase or decrease in equity consists of the following:
• retained earnings/(accumulated loss) since acquisition to the beginning of the
current period
• profit or loss for the current period

• gains or losses included in other comprehensive income for the current period

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