January 2023- Your Global Summary of IFRS News and Developments RSM Global

However each is able to significantly influence the financial and operational policies of the entity. In this scenario, the partners will account for their investment in the joint venture as an equity method investment. In the case of an equity method investment, the investor’s investment asset is analyzed for impairment, not the underlying assets of the investee. The investment asset’s recoverability, or the amount of cash or earnings it will generate over its remaining life, is compared against the investor’s carrying value. If the equity investment is not deemed to be recoverable, the carrying value of the investment asset is then compared to its fair value. The impairment loss is the amount of the carrying value over the fair value and is recorded as a reduction to the investment asset offset by an impairment loss. If such a contribution lacks commercial substance, the gain or loss is regarded as unrealised and is not recognised unless paragraph 31 also applies.

The contractual arrangement establishes that the parties to the joint arrangement are liable to the arrangement only to the extent of their respective investments in the arrangement or to their respective obligations to contribute any unpaid or additional capital to the arrangement, or both. The contractual arrangement provides the parties to the joint arrangement with rights to the net assets of the arrangement . The following table compares common terms in contractual arrangements of parties to a joint operation and common terms in contractual arrangements of parties to a joint venture. The examples of the contractual terms provided in the following table are not exhaustive.

IAS 28 — Investments in Associates and Joint Ventures (

The fixed interest payments are variable https://intuit-payroll.org/ for the purpose of this IFRS because they are subject to default risk and they expose the investor to the credit risk of the issuer of the bond. Similarly, fixed performance fees for managing an investee’s assets are variable returns because they expose the investor to the performance risk of the investee. The amount of variability depends on the investee’s ability to generate sufficient income to pay the fee. An investor may have an explicit or implicit commitment to ensure that an investee continues to operate as designed. Such a commitment may increase the investor’s exposure to variability of returns and thus increase the incentive for the investor to obtain rights sufficient to give it power.

Loans for operating production inputs e.g. cotton for the Cotton Company of Zimbabwe and beef for the Cold Storage Company of Zimbabwe , are assumed to be self-liquidating. In other words, although the inputs are used up in the production, the added returns from their use will repay the money borrowed to purchase the inputs, plus interest. Astute managers are also expected to have figured in a risk premium and a return to labour management. On the other hand, loans for investment capital items like machinery are not likely to be self-liquidating in the short term. Loans for family living expenses are not at all self-liquidating and must come out of net cash income after all cash obligations are paid.

Deloitte comment letter on ED/2012/6 ‘Sale or Contribution of Assets between an Investor and its Associate or Joint Venture’

An entity changing from the equity method to accounting for assets and liabilities shall provide a reconciliation between the investment derecognised, and the assets and liabilities recognised, together with any remaining difference adjusted against retained earnings, at the beginning of the earliest period presented. The heading “Other operating income – Financial income from non-financial services” in the consolidated income statements includes the carrying amount of the sales of assets and income from the services provided by the Group companies that are not financial institutions. In the case of the Group, these companies are mainly real estate and service companies . If the fair value minus sale costs is lower than the amount registered in the balance sheet for the loan, a loss is recognized under the heading “Impairment losses on other assets ” in the income statement for the period. In the case of real-estate assets accounted for as inventories, the BBVA Group’s criterion for determining their net realizable value is mainly based on independent appraisals no more than one year old, or less if there are indications of impairment. Property, plant and equipment for own use are presented in the consolidated balance sheets at acquisition cost, less any accumulated depreciation and, where appropriate, any estimated impairment losses resulting from comparing this net carrying amount of each item with its corresponding recoverable amount.

• If the investor does not control the investee but has the ability to exercise significant influence over the investee’s operating and financial policies, the equity method is the correct accounting treatment for the investment.
• The structured entity obtains exposure to entity Z’s credit risk by entering into a credit default swap with a swap counterparty.
• Each joint operator accounts for its share of the joint asset and its agreed share of any liabilities, and recognises its share of the output, revenues and expenses in accordance with the contractual arrangement.
• The parameters necessary for its calculation are also used to calculate economic capital and to calculate BIS II regulatory capital under internal models .
• When an entity enters into a transaction with a joint operation in which it is a joint operator, such as a purchase of assets, it shall not recognise its share of the gains and losses until it resells those assets to a third party.

They distinguish between How To Account For Partial Disposals Subsidiary To Associate and expenses recognized as results in the consolidated income statements and “Other recognized income ” recognized directly in consolidated equity. “Other recognized income ” include the changes that have taken place in the year in the “Valuation adjustments” broken down by item. These services are measured at fair value, unless this value cannot be calculated reliably. In this case, they are measured by reference to the fair value of the equity instruments committed, taking into account the date on which the commitments were assumed and the terms and other conditions included in the commitments.