ED/IndAS/2018/08
Exposure Draft
Long-term Interests in Associates and Joint Ventures
(Amendments to Ind AS 28)
(Last date for the comments: 11th July, 2018)
Issued by
Accounting Standards Board
The Institute of Chartered Accountants of India
ED/IndAS/2018/08
Exposure Draft
Long-term Interests in Associates and Joint Ventures (Amendments
to Ind AS 28)
Following is the Exposure Draft of Long-term Interests in Associates and Joint Ventures
(Amendments to Ind AS 28) issued by the Accounting Standards Board of the Institute of
Chartered Accountants of India, for comments.
The Board invites comments on any aspect of this Exposure Draft. Comments are most
helpful if they indicate the specific paragraph or group of paragraphs to which they relate,
contain a clear rationale and, where applicable, provide a suggestion for alternative wording.
How to Comment
Comments should be submitted using one of the following methods, so as to receive not later
than 11th July, 2018:
1 Electronically: Click on the below mentioned option to submit a comment letter
or visit at the following link (Preferred method):
http://www.icai.org/comments/asb/
2 Email: Comments can be sent at commentsasb@icai.in
3 Postal: Secretary, Accounting Standards Board,
The Institute of Chartered Accountants of India,
ICAI Bhawan, Post Box No. 7100,
Indraprastha Marg, New Delhi 110 002
Further clarifications on any aspect of this Exposure Draft may be sought by e-mail to
asb@icai.in.
ED/IndAS/2018/08
Amendments to
Ind AS 28, Investments in Associates and Joint Ventures
Paragraphs 14A and 45F45J are added and paragraph 41 is deleted. Deleted text
is struck through.
Equity method
...
14A An entity also applies Ind AS 109 to other financial instruments in an
associate or joint venture to which the equity method is not applied. These
include long-term interests that, in substance, form part of the entity's net
investment in an associate or joint venture (see paragraph 38). An entity
applies Ind AS 109 to such long-term interests before it applies paragraph 38
and paragraphs 4043 of this Standard. In applying Ind AS 109, the entity
does not take account of any adjustments to the carrying amount of long-
term interests that arise from applying this Standard.
...
Application of the equity method
...
41 [Refer Appendix 1] The entity applies the impairment requirements in Ind
AS 109 to its other interests in the associate or joint venture that are in the
scope of Ind AS 109 and that do not constitute a part of the net investment
...
Effective date and transition
...
45F Long-term Interests in Associates and Joint Ventures, added paragraph 14A
and deleted paragraph 41. An entity shall apply those amendments
retrospectively in accordance with Ind AS 8 for annual reporting periods
beginning on or after 1 April, 20191, except as specified in paragraphs 45G
45J. Earlier application is permitted. If an entity applies those amendments
earlier, it shall disclose that fact.
45G An entity that first applies the amendments in paragraph 45F at the same time
it first applies Ind AS 109 shall apply the transition requirements in Ind AS
109 to the long-term interests described in paragraph 14A.
45H An entity that first applies the amendments in paragraph 45F after it first
1
Since these amendments will be notified by the Ministry of Corporate Affairs (MCA), the effective date as mentioned
in paragraph 45F, is subject to the notification of MCA with the same effective date.
ED/IndAS/2018/08
applies Ind AS 109 shall apply the transition requirements in Ind AS 109
necessary for applying the requirements set out in paragraph 14A to long-
term interests. For that purpose, references to the date of initial application in
Ind AS 109 shall be read as referring to the beginning of the annual reporting
period in which the entity first applies the amendments (the date of initial
application of the amendments). The entity is not required to restate prior
periods to reflect the application of the amendments. The entity may restate
prior periods only if it is possible without the use of hindsight.
45I [Refer Appendix 1].
45J If an entity does not restate prior periods applying paragraph 45H , at the date
of initial application of the amendments it shall recognise in the opening
retained earnings (or other component of equity, as appropriate) any
difference between:
(a) the previous carrying amount of long-term interests described in
paragraph 14A at that date; and
(b) the carrying amount of those long-term interests at that date.
Appendix 1
Paragraphs 4 and 5 are added.
4. Paragraph 45I of IAS 28 related to temporary exemption from IFRS 9 in
accordance with IFRS 104, Insurance Contracts, has not been included in Ind
AS 28 since the said exemption has not been given under Ind AS 104.
5. Paragraphs 41 and 45I appear as `deleted' in IAS 28. In order to maintain
consistency with paragraph numbers of IAS 28, the paragraph numbers are
retained in Ind AS 28.
ED/IndAS/2018/08
Illustrative Example--Long-term Interests in
Associates and Joint Ventures
This example portrays a hypothetical situation illustrating how an entity (investor) accounts
for long-term interests that, in substance, form part of the entity's net investment in an
associate (long-term interests) applying Ind AS 109 and Ind AS 28 based on the assumptions
presented. The entity applies Ind AS 109 in accounting for long-term interests. The entity
applies Ind AS 28 to its net investment in the associate, which includes long-term interests.
The analysis in this example is not intended to represent the only manner in which the
requirements in Ind AS 28 could be applied.
Assumptions
The investor has the following three types of interests in the associate:
(a) O Shares--ordinary shares representing a 40% ownership interest to which the
investor applies the equity method. This interest is the least senior of the three
interests, based on their relative priority in liquidation.
(b) P Shares--non-cumulative preference shares that form part of the net investment in the
associate and that the investor measures at fair value through profit or loss applying
Ind AS 109.
(c) LT Loan--a long-term loan that forms part of the net investment in the associate and
that the investor measures at amortised cost applying Ind AS 109, with a stated interest
rate and an effective interest rate of 5% a year. The associate makes interest-only
payments to the investor each year. The LT Loan is the most senior of the three
interests.
The LT Loan is not an originated credit-impaired loan. Throughout the years illustrated, there
has not been any objective evidence that the net investment in the associate is impaired
applying Ind AS 28, nor does the LT Loan become credit-impaired applying Ind AS 109.
The associate does not have any outstanding cumulative preference shares classified as
equity, as described in paragraph 37 of Ind AS 28. Throughout the years illustrated, the
associate neither declares nor pays dividends on O Shares or P Shares.
The investor has not incurred any legal or constructive obligations, nor made payments on
behalf of the associate, as described in paragraph 39 of Ind AS 28. Accordingly, the investor
does not recognise its share of the associate's losses once the carrying amount of its net
investment in the associate is reduced to zero.
The amount of the investor's initial investment in O Shares is 200, in P Shares is 100 and
in the LT Loan is 100. On acquisition of the investment, the cost of the investment equals
the investor's share of the net fair value of the associate's identifiable assets and liabilities.
This table summarises the carrying amount at the end of each year for P Shares and the LT
Loan applying Ind AS 109 but before applying Ind AS 28, and the associate's profit (loss) for
each year. The amounts for the LT Loan are shown net of the loss allowance.
ED/IndAS/2018/08
LT Loan applying
P Shares applying Ind AS 109 Profit (Loss) of the
(amortised
At the end of Ind AS 109 (fair cost) associate
value)
Year 1 110 90 50
Year 2 90 70 (200)
Year 3 50 50 (500)
Year 4 40 50 (150)
Year 5 60 60
Year 6 80 70 500
Year 7 110 90 500
Analysis
Year 1
The investor recognises the following in Year 1:
Investments in the associate:
DR. O Shares 200
DR. P Shares 100
DR. LT Loan 100
CR. Cash 400
To recognise the initial investment in the associate
DR. P Shares 10
CR. Profit or loss 10
To recognise the change in fair value (110 - 100)
DR. Profit or loss 10
CR. Loss allowance (LT Loan) 10
To recognise an increase in the loss allowance (90 - 100)
DR. O Shares 20
CR. Profit or loss 20
To recognise the investor's share of the associate's profit (50 × 40%)
At the end of Year 1, the carrying amount of O Shares is 220, P Shares is 110 and the LT
Loan (net of loss allowance) is 90.
Year 2
The investor recognises the following in Year 2:
DR. Profit or loss 20
ED/IndAS/2018/08
CR. P Shares 20
To recognise the change in fair value (90 - 110)
DR. Profit or loss 20
CR. Loss allowance (LT Loan) 20
To recognise an increase in the loss allowance (70 90)
DR. Profit or loss 80
CR. O Shares 80
To recognise the investor's share of the associate's loss (200 × 40%)
At the end of Year 2, the carrying amount of O Shares is 140, P Shares is 90 and the LT
Loan (net of loss allowance) is 70.
Year 3
Applying paragraph 14A of Ind AS 28, the investor applies Ind AS 109 to P Shares and the
LT Loan before it applies paragraph 38 of Ind AS 28. Accordingly, the investor recognises
the following in Year 3:
DR. Profit or loss 40
CR. P Shares 40
To recognise the change in fair value (50 - 90)
DR. Profit or loss 20
CR. Loss allowance (LT Loan) 20
To recognise an increase in the loss allowance (50 70)
DR. Profit or loss 200
CR. O Shares 140
CR. P Shares 50
CR. LT Loan 10
To recognise the investor's share of the associate's loss in reverse order of seniority as
specified in paragraph 38 of Ind AS 28 (500 × 40%)
At the end of Year 3, the carrying amount of O Shares is zero, P Shares is zero and the LT
Loan (net of loss allowance) is 40.
Year 4
Applying Ind AS 109 to its interests in the associate, the investor recognises the following in
Year 4:
DR. Profit or loss 10
CR. P Shares 10
To recognise the change in fair value (40 - 50)
Recognition of the change in fair value of 10 in Year 4 results in the carrying amount of P
Shares being negative 10. Consequently, the investor recognises the following to reverse a
portion of the associate's losses previously allocated to P Shares:
ED/IndAS/2018/08
DR. P Shares 10
CR. Profit or loss 10
To reverse a portion of the associate's losses previously allocated to P Shares
Applying paragraph 38 of Ind AS 28, the investor limits the recognition of the associate's
losses to 40 because the carrying amount of its net investment in the associate is then zero.
Accordingly, the investor recognises the following:
DR. Profit or loss 40
CR. LT Loan 40
To recognise the investor's share of the associate's loss
At the end of Year 4, the carrying amount of O Shares is zero, P Shares is zero and the LT
Loan (net of loss allowance) is zero. There is also an unrecognised share of the associate's
losses of 30 (the investor's share of the associate's cumulative losses of 340 320 losses
recognised cumulatively + 10 losses reversed).
Year 5
Applying Ind AS 109 to its interests in the associate, the investor recognises the following in
Year 5:
DR. P Shares 20
CR. Profit or loss 20
To recognise the change in fair value (60 - 40)
DR. Loss allowance (LT Loan) 10
CR. Profit or loss 10
To recognise a decrease in the loss allowance (60 50)
After applying Ind AS 109 to P Shares and the LT Loan, these interests have a positive
carrying amount. Consequently, the investor allocates the previously unrecognised share of
the associate's losses of 30 to these interests.
DR. Profit or loss 30
CR. P Shares 20
CR. LT Loan 10
To recognise the previously unrecognised share of the associate's losses
At the end of Year 5, the carrying amount of O Shares is zero, P Shares is zero and the LT
Loan (net of loss allowance) is zero.
Year 6
Applying Ind AS 109 to its interests in the associate, the investor recognises the following in
Year 6:
ED/IndAS/2018/08
DR. P Shares 20
CR. Profit or loss 20
To recognise the change in fair value (80 - 60)
DR. Loss allowance (LT Loan) 10
CR. Profit or loss 10
To recognise a decrease in the loss allowance (70 60)
The investor allocates the associate's profit to each interest in the order of seniority. The
investor limits the amount of the associate's profit it allocates to P Shares and the LT Loan to
the amount of equity method losses previously allocated to those interests, which in this
example is 60 for both interests.
DR. O Shares 80
DR. P Shares 60
DR. LT Loan 60
CR. Profit or loss 200
To recognise the investor's share of the associate's profit (500 × 40%)
At the end of Year 6, the carrying amount of O Shares is 80, P Shares is 80 and the LT
Loan (net of loss allowance) is 70.
Year 7
The investor recognises the following in Year 7:
DR. P Shares 30
CR. Profit or loss 30
To recognise the change in fair value (110 - 80)
DR. Loss allowance (LT Loan) 20
CR. Profit or loss 20
To recognise a decrease in the loss allowance (90 70)
DR. O Shares 200
CR. Profit or loss 200
To recognise the investor's share of the associate's profit (500 × 40%)
At the end of Year 7, the carrying amount of O Shares is 280, P Shares is 110 and the LT
Loan (net of loss allowance) is 90.
Years 17
When recognising interest revenue on the LT Loan in each year, the investor does not take
account of any adjustments to the carrying amount of the LT Loan that arose from applying
Ind AS 28 (paragraph 14A of Ind AS 28). Accordingly, the investor recognises the following
in each year:
ED/IndAS/2018/08
DR. Cash 5
CR. Profit or loss 5
To recognise interest revenue on LT Loan based on the effective interest rate of 5%
Summary of amounts recognised in profit or loss
This table summarises the amounts recognised in the investor's profit or loss.
Impairment Share of profit
Items (losses), Gains (losses) (loss) of the Interest
recognised including of P Shares associate revenue
During reversals, applying recognised applying
applying Ind AS 109 applying the Ind AS 109
Ind AS 109 equity method
Year 1 (10) 10 20 5
Year 2 (20) (20) (80) 5
Year 3 (20) (40) (200) 5
Year 4 (10) (30) 5
Year 5 10 20 (30) 5
Year 6 10 20 200 5
Year 7 20 30 200 5
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