IAS 28 – carrying value of investments in associates

A acquires 25% of the voting shares of B on January 1, 20X5. The purchase consideration was $10 million, and A has significant influence over B. The retained earnings of B were $15 million at the date of acquisition, and the A group has several other subsidiaries. The retained earnings of B at December 31, 20X5, were $21 million.

Required

Calculate the carrying value of the investment in B in the group financial statements at December 31, 20X5.

Solution

	$m
Cost of investment	10.0
Share of postacquisition reserves 25% of ($21 – 15)m	1.5
	11.5

The share of the post-acquisition reserves will be credited to the retained earnings of the group. Goodwill in an associate is not separately recognized. The entire carrying amount is tested for impairment.

In the consolidated income statement [consolidated statement of comprehensive income], income from associates for the year is reported after profit from operations, just before profit before tax.