Ch 13: Investment in Associate
1. Equity Method for Associate
1-2 Q&A Determined Limited (ICAP Spring 2022) [O]
Query: Sir ye Kesy pta chla 2nd issue me k payment Coupon interest ki hui wi h?
Response: The payment or receipt is always based on conditions of the instrument i.e. coupon rate and par value are mentioned in/on the instrument (see chapter on Financial Instruments).
Query: For equity you said k by default FV PnL hoga in absence of info . What about debt securities if examiner gives FVs and doesn't specify?
Response: 1. Default residual category for investment in debt instruments is also FVTPL. However, most questions would indicate towards amortised cost (i.e. intention to collect interest etc.). 2. Default classification for financial liabilities will be at amortised cost (use FV only if held for trading).
1-3 Q&A Hexagon Industries / Kite Limited (ICAP Autumn 2022) [R]
2. Consolidation with Associate (Equity Method)
2-2 Q&A Pistachio Limited (ICAP Spring 2020) [R]
Query: sir adjustment 5 main hum ny 10m ka total gain adjust q ni kiya us main say 1 minus q kiya hi
Response: Out of Rs. 10 million, Rs. 1 million has been realised (through 6 months depreciation), therefore adjustment of unrealised profit is of Rs. 9 million (i.e. 10 -1)
Query: Sir in point vi. Jb other income reverse kren gy to aik effect SOCI me jata ( I think yhan nahi Jana chaiye but Ap ny kaha Discussion l Duran k P&L me reverse kren gy so) but 2nd W5 me bhi to Jana chaiye woh yhan Incorporate kuen nahi kia?
Response: Solution in the video is correct. When we use share of post acquisition retained earnings , it already includes the effect of share of profit and *dividend*. So W5 and W6 had that impact when we included *share of post acquisition retained earnings*.
In profit or loss, because PL has included dividend as other income, which is not done in equity method, adjustment is needed.
2-3 Q&A Manzil Limited (ICAP Autumn 2020) [R]
Query: Manzil Limited adj No (vii). loss on invesment in equity through OCI of subsidiary full charge in Conslidated SOCI? But investment share is 60%
Response: That is how consolidation is done i.e. full consolidation. And remaining 40% effect is shown separately as NCI share.
2-5 Q&A Safawi Limited (ICAP Autumn 2021) [O]
Query: sir point 2 main inventory ki am toor par hum purp calculate krtty hain lakin yahan esa q ni ki 60 pora q likha hi
Response: Because this is "fair value adjustment", not "unrealised profit" adjustment. We suggest to solve questions after properly covering consolidation lectures to have good grip on basic concepts.
Query: sir point 5 main AL k shares ko FV par record q ni kiya as investment...????
Response: Because in consolidated financial statements, Investment in associate is measured using equity method and not fair value. We suggest to solve questions after properly covering consolidation lectures to have good grip on basic concepts.
Query: sir point 7 main sl na sale ki hi to associate main us ki purp q likhi hi???
Response: Associate's share of profit is to be included in profit of parent entity because parent entity has significant influence and investment in the associate. Any unrealised profit will affect "that share" and "investment in associate" as other assets of associate (e.g. PPE or inventory) are not included in consolidated financial statements. We suggest to solve questions after properly covering consolidation lectures to have good grip on basic concepts.
2-7 Q&A Heptagon Limited (ICAP Autumn 2022) [I]
Query: MashALLAH very well explained. sir, there is one problem. in icap sol investment in the associate is 112 but in urs, it's 111. but am Agreed to icap bcz as per IAS-28 correct entry is share of profit(cre) debit by 1 and stock credit by 1(point vii). but u made an entry as a share of profit(cre) debit and investment credit. thats why ur investment in the associate is 111. kindly recorrect it
Response: JazakAllah for your evaluation. It is good that you agree with ICAP solution, however, you have probably neither watched this video fully (as in the end we explained both possible accounting treatments) nor you studied study text (Page 711 Chapter 13) properly where both methods have been explained.
3. Objective Based Q&A