IAS 28 Investments in Associates and Joint Ventures – Equity Method Explained
1️⃣ Introduction: Understanding IAS 28 Investments in Associates and Joint Ventures
IAS 28 Investments in Associates and Joint Ventures prescribes how investors account for long-term interests in companies they influence but do not control.
In Singapore’s interconnected business environment—where professional-service firms often hold stakes in allied entities—IAS 28 Investments in Associates and Joint Ventures ensures transparent reporting and comparability across group structures.
The standard works together with IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements to present a consistent picture of ownership relationships.
2️⃣ Purpose and Scope
IAS 28 applies when an investor:
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Holds significant influence (normally 20–50 % of voting power) over another entity, called an associate.
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Participates in a joint venture where decisions require unanimous consent.
It does not apply to subsidiaries (fully controlled entities) or financial instruments measured under IFRS 9.
The goal is to ensure the investor recognises its share of profit or loss and net assets of the associate or joint venture using the equity method.
3️⃣ What Is Significant Influence?
Significant influence is the power to participate in financial and operating policy decisions, but not control them.
Indicators include:
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Board representation or participation in policy-making.
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Material transactions between the investor and investee.
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Exchange of managerial personnel.
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Provision of essential technical information.
For example, if uSafe Accounting Pte. Ltd. owns 25 % of Think Scope Pte. Ltd. and appoints one director, the company likely exerts significant influence under IAS 28.
4️⃣ Applying the Equity Method
Under IAS 28 Investments in Associates and Joint Ventures, the investor:
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Initial Recognition: Records the investment at cost.
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Subsequent Measurement: Adjusts the carrying amount for its share of the investee’s profit or loss and other comprehensive income.
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Dividends: Reduce the carrying amount of the investment.
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Losses: Recognise losses only up to the investor’s interest, unless further obligations exist.
This method aligns the investor’s results with those of the associate, providing a more faithful representation of performance.
5️⃣ Discontinuing the Equity Method
An investor stops applying the equity method when it loses significant influence or joint control. From that date, it measures the retained interest at fair value under IFRS 9.
Any difference between carrying amount and fair value is recognised in profit or loss.
Therefore, companies must monitor ownership changes and contractual arrangements closely.
6️⃣ Impairment Testing
IAS 28 refers to IAS 36 Impairment of Assets for determining whether the investment’s carrying amount exceeds its recoverable amount.
If indicators such as prolonged losses or declining cash flows appear, firms must test and record impairment losses accordingly.
Recoveries are recognised only if the impairment conditions reverse.
7️⃣ Disclosure Requirements
IAS 28 Investments in Associates and Joint Ventures requires disclosure of:
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The name, nature, and ownership percentage of each significant associate or joint venture.
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The method used to account for the investment.
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Summarised financial information, including total assets, liabilities, and profit or loss.
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Reasons if the investor’s interest is below 20 % yet still treated as significant.
Singapore’s ACRA and audit reviewers often verify that equity-method movements reconcile to underlying financial statements.
8️⃣ Example: IAS 28 in Practice
Scenario:
uSafe Consultancy Pte. Ltd. invests 30 % in a technology-advisory company for SGD 400 000. During FY 2024, the investee reports a profit of SGD 100 000 and pays a dividend of SGD 20 000.
Accounting treatment:
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Share of profit: SGD 30 000 (30 % × 100 000).
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Less dividend: SGD 6 000 (30 % × 20 000).
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Closing carrying amount: SGD 424 000.
The profit share appears in uSafe’s income statement under “Share of profit of associate.”
9️⃣ Common Errors
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Using cost method instead of equity method after significant influence is established.
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Failing to eliminate unrealised profits on transactions with associates.
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Ignoring impairment indicators.
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Omitting disclosures about ownership percentages or voting rights.
Avoiding these issues helps ensure full compliance with IAS 28 Investments in Associates and Joint Ventures.
🔟 Best Practices
✅ Document the assessment of significant influence annually.
✅ Maintain reconciliations between the associate’s accounts and your general ledger.
✅ Coordinate with auditors to verify elimination of inter-company profits.
✅ Provide concise narrative explanations in financial-statement notes.
As a result, readers understand how each investment contributes to group performance.
Conclusion
IAS 28 Investments in Associates and Joint Ventures ensures investors reflect their share of results realistically rather than solely at cost.
For Singapore firms with cross-holdings or regional joint ventures, proper application of IAS 28 promotes accuracy, accountability, and comparability—pillars of transparent reporting.
Disclaimer: This article is for informational purposes only and does not constitute any professional advice. Feel free to contact us to consult with our professional advisors team for personalized advice and guidance.
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