Chapter 22

SMES ASSOCIATE AND INVESTMENT PROPERTY

Associate
Entity over which the investor has significant

influence but is neither a subsidiary nor a joint venture of investor.

Significant Influence
Power to participate in the financial and operating

policy decisions of the associate but is not control or joint control over these policies

Guidance on Significant Influence

A. Under full PRFS If the investor holds at least 20% of the investees voting power , it has

significant influence

If the investor holds below 20% of the investees voting power, it may have a) b) c) d) e)

significant influence if there is: Representation in the Board of Directors Participation in the policy making process Material transactions between investor and investee Interchange of managerial personnel Provision of essential personnel

B. Under PFRS for SMEs Does not provide much guidance on how to identify significant influence SME may look into the guidance of Full PFRS but is not required to do so

Measurement
A. Under Full PFRS Investor has no accounting policy choice Investments in associates shall be accounted for using

the equity method only.

B. Under PFRS for SMEs

Investor shall account for all of its investment in

associates using any of the following: 1. Cost Model 2. Equity Model 3. Fair Value Model

Cost Model
1.

Initial measurement

Transaction price including transaction cost

2. Subsequent measurement
Cost less any accumulated impairment loss

3. All dividends and other distributions received are

recognized as income
without regard whether the dividends are from

pre-acquisition or post-

acquisition retained earnings of the associate.

Equity Method
1.

Initial measurement

Transaction price including transaction cost

2. Subsequent measurement
Investment is adjusted to reflect the investors share in profit or loss and other

comprehensive income of the associate.

3. Dividends and distributions received from the

associate
Recognized as Reduction of the Carrying Amount of the investment

Equity Method
4. Investment account is tested for impairment 5. Excess of Acquisition cost over the Fair Value of the

net identifiable assets acquired

Goodwill , included in the Carrying Amount of the investment

Any goodwill included in the carrying amount of the investment is not tested

separately but rather as part of the test of impairment of the investment as a whole.

6. Excess of the Fair Value of the net identifiable assets

over the acquisition cost

Included in the investors share of profit or loss of the associate

Fair Value Model

1.

Initial measurement At each reporting date

or loss.

Transaction price, excluding transaction cost

2.

Investment is measured at Fair value with changes in fair value recognized in profit

3. Cost to sell is ignored 4. If it is impractible to measure Fair value reliably without

undue cost or effort

Investment is account for under the Cost Model

5. Not tested for impairment

Published price quotation

Fair Value model shall be applied

Financial Statement Presentation

Separate line item under non-current assets Investment in associate shall disclose the following:

Accounting policy 2. Carrying amount 3. Fair value of investments accounted for using equity method for which there is a public price quotation.
1.

Investment Property
Property (Land, building or part of a building , or both) held by an owner or by

the lessee under a finance lease to earn rentals or for capital appreciation or both, rather than: Use in the production or supply of goods or services or for administrative purposes, or Sale in the ordinary course of business

a)

b)

Examples of Investment Property

1.

Building that is rented out to independent parties under an operating lease

2.
3. a)

A tract of land acquired as a long-term investment

A building that is rented out under an operating lease and the entity provides cleaning, security and maintenance services If the services provided by the entity are insignificant to the lease agreement, the property is investment property If the services are insignificant part of the arrangement, for example, a hotel, the building is PPE. A tract of land held for an undetermined future use

b)

4.

PFRS for SMEs does not specify how to classify such land. According to full PFRS, such land is classified as investment property

Property interest held by lessee under operating lease

May be classified and accounted for as investment property : 1.

If the property would otherwise meet the definition of an investment property Lessee can measure the fair value of the property interest without undue cost or effort on an ongoing basis.

2.

This classification is done on a property-by-property basis. The entity shall account for the operating lease as if it were a finance lease. The asset and liability shall be recognized at the lower of the property interest

and the present value of minimum lease payments.

Mixed used property

Shall be separated between investment property and

PPE.
If the fair value of the investment property

component cannot be reliably measured without undue cost or effort, the entire property shall be accounted for as PPE.

Measurement
1.

Initial measurement
At Cost (Purchase Price+ Any directly attributable expenditure) Borrowing cost directly attributable to the construction of an investment property ( Expense when incurred)

2. Subsequent Measurement
a)

Under PFRS for SMEs

If the fair value can be measured reliably without undue cost or effort on an ongoing basis (Fair Value) If the fair value of the investment property cannot be measured reliably ( Investment Property is accounted for as Property, Plant, and Equipment using the Cost-depreciationimpairment model)
b) Under Full PFRS Allows an accounting policy of either fair value model or cost model If the entity follows the cost model, fair value of the property must be disclosed. Investment held by a lessee under an operating lease , entity must follow the fair value

model for all of its investment properties.

Transfer
1.

SME shall transfer property to or from investment property only when the property meets or ceases to meet the definition of investment property If a reliable measure of fair value is no longer available for investment property using fair value model

2.

Entity shall account for that investment property as PPE using the cost-

depreciation-impairment model, until a reliable measure of fair value becomes available.