Ind AS 28 "Investment in Associates & Joint Ventures" X Ltd. acquired a 10% interest in V Ltd. for 50,000 on 1st June, 20X6. The investment in V…

While applying equity method, paragraph 10 of Ind AS 28 requires, the investment in an associate to be initially recognized at cost. However, it doesn't include any specific guidance on how to account for existing investment, which is accounted for under Ind AS 109, that subsequently becomes an associate or a joint venture. One may apply the fair value approach, by drawing an analogy from paragraph 42 of Ind AS 103. Paragraph 42 of Ind AS 103, 'Business Combinations', deals with the situation where control over an acquiree is achieved in stages. In such a case, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisitions- date fair value and recognize the resulting gain or loss, if any, in profit or loss or OCI, as appropriate. In prior reporting periods, the acquirer may have recognised changes in the value of its equity interest in the acquiree on OCI. If so, the amount that was recognized in OCI shall be recognized on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest. On application of the above guidance, following accounting will be done: Computation of goodwill on gaining significant influence on V Ltd. Particulars ₹ Fair value of previously held 10% interest [2,00,000/25% x10%] 80,000 Fair value of additional 25% (amount paid) 2,00,000 Cost of investment in associate V Ltd. 2,80,000 Less: Fair value of identifiable net assets acquired (4,00,000 x 35%) (1,40,000) Goodwill 1,40,000 Journal Entries Particulars Amount (₹) Amount (₹) Investment A/c (10%) Dr. 30,000 To OCI (Equity) 30,000 Investment in Associates A/c (35%) Dr. 2,80,000 To Bank A/c 2,00,000 To Investment (FVTOCI) (10%) 80,000 OCI (Equity) Dr. 30,000 To Retained Earning 30,000