SME- Associate

David, Anna Mariel V.

Gomez, Princess Anne C.
A-432
What is an associate?
An associate is an entity over which the investor
has significant influence but is neither a subsidiar
y nor a joint venture if the investor.
Significant Influence
Is the power to participate in the financial and o
perating policy decisions of the associate but is n
ot control or joint venture over those policies.
It is presumed to exist when the investor holds a
t least 20% of the investee's voting power.
Measurements
The PFRS for SMEs provides that an investor shall
account for all of its investments in associates usi
ng any one of the following:
a. Cost model
b. Equity model
c. Fair value model
 o The PFRS for SMEs does not provide much guidanc
e on how to identify significant influence.
o Full PFRS indicates the existence of significant influ
ence beyond the mere 20% threshold as follows:
1. Representation in the BOD
2. Participation in the policy making process
3. Material transactions between the investor and th
e investee
4. Interchange of managerial personnel
5. Provision of essential information
Cost Model
The investment in associate is initially measure
d at transaction price including transaction cost.
Subsequently, the investor shall measure it at c
ost less any accumulated impairment losses.
It is not permitted if the investment has a publi
shed price quotation.
Note!
All dividends and other distributions received ar
e recognized as income without regard whether
the dividends are from preacquisition or postac
quistion retained earnings of the associate.
Equity Method
The investment account is initially recognized at
transaction price including transaction cost.
Subsequently, the investment is adjusted to refl
ect the investor's share in the profit or loss and
other comprehensive income of the associate.
Note!
Dividends and other distributions received from
the associate are recognized as reduction of the
carrying amount of the investment.
The excess of the acquisition cost over the fair v
alue of the net identifiable assets acquired is go
odwill which is included in the carrying amount
of the investment.
Fair Value Model
The investment is initially measured at transacti
on price excluding transaction cost.
At each reporting date, the investment is meas
ured at fair value with changes in fair value reco
gnized in profit or loss.
If it is impracticable to measure fair value reliab
ly without undue cost or effort, the investment i
s accounted for under cost model.
Financial Statement Presentation
Investment in associate shall be presented as a s
eparate line item under noncurrent assets.
An investor shall disclose the following:
a. The accounting policy for the investment in asso
ciate
b. The carrying amount of investment in associate
c. The fair value of investments accounted for usin
g the equity method for which there is a publish
ed price quotation
COMPARISON
 PFRS for SMEs Full PFRS
All investments are The investor has no
accounted for using any accounting policy choice.
one of the cost model, The investments shall be
equity method and fair accounted for using equity
value model. method.

Guidance on significant
influence
Consequences when an
investment ceases to be an
associate.
Profit and loss from
upstream and downstream
transactions