Equity accounting: where's it at?

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. An associate is an entity in which the investor has significant influence, but which is neither a subsidiary nor a joint venture of the investor. Which of the following is true regarding the definition of `significant influence`?

  2. A joint venture is a joint arrangement where the parties that have joint control, have rights to the arrangement`s net assets. How are joint ventures accounted for?

  3. On initial recognition, the investment in an associate or a joint venture is recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. How is an entity's interest in a joint venture or associate determined?

  4. An investment in an associate is tested for impairment in accordance with IAS 36, Impairment of Assets, and if there are impairment indicators under IAS 39, Financial Instruments: Recognition and Measurement. The carrying amount of the investment is tested for impairment. Which of the following statements is true?

  5. IFRS 5, Non-current Assets Held for Sale and Discontinued Operations applies to associates and joint ventures that meet the criteria to be classified as such. Any portion of the investment that has not been classified as held for sale is still equity accounted until the disposal. How is the retained interest measure after disposal?

  6. IAS 28 states that profits and losses resulting from `upstream` and `downstream` transactions between an investor including its consolidated subsidiaries and an associate or joint venture are recognised only to the extent of the unrelated investors` interests in the associate or joint venture. Upstream transactions are sales of assets from an associate to the investor and downstream transactions are sales of assets by the investor to the associate. How would unrealised gains in downstream transactions normally be treated?

  7. There is an inconsistency in accounting for the loss of control of a subsidiary and the recognition of gains and losses arising from sales of non-monetary assets to an associate or a joint venture. What is the cause of the inconsistency?

  8. The IASB issued an exposure draft in December 2012 stating that any gain or loss resulting from the sale of an asset that does not constitute a business between an investor and its associate or joint venture should be partially recognised. However, any gain or loss arising from the sale of an asset that does constitute a business between an investor and its associate or joint venture should be fully recognised. What is the definition of a business in this context?

  9. Under the equity method, the investment is initially recognised at cost and adjusted to recognise the investor`s share of the profit or loss and other comprehensive income of the investee. Additionally, the investment is reduced by distributions received from the investee. However, IAS 28 is silent on how to treat other changes in the net assets of the investee in the investor`s account. What have the IASB proposed in the ED issued in November 2012?

  10. The ED in November 2012 notes that an investor may discontinue the use of the equity method for various reasons including where the investment in the investee becomes a subsidiary or a financial asset. What does the ED propose should be the accounting treatment when an investor discontinues the use of the equity method for any reason?