Group accounts

IAS 28 · Associates

Significant influence means one line, under the equity method.

Draft: not yet reviewed by a teacher

Why it exists

A 30% stake gives a voice in decisions but not control of the company. Adding its assets line by line would be wrong, because the group does not control them. Showing only the purchase price would also be wrong, because it hides what the stake has earned. The equity method shows the investor's share of the results.

Key rules

Significant influence is the power to take part in the financial and operating policy decisions of the investee without controlling it.
Holding 20–50% of the votes is presumed to give significant influence; the presumption can be overturned by the facts.
Signs of influence: a seat on the board, taking part in policy-making, material transactions, an exchange of key staff, essential technical information.
In the consolidated statement of financial position: investment = cost + share of post-acquisition profit − dividends received (one line).
In the consolidated statement of profit or loss: the share of the associate's profit as one line; its revenue and expenses are not added. Under IFRS 18 this line is in the investing category, after operating profit.
Dividends from the associate reduce the investment and are not shown again as group income (that would count the profit twice).

Examples

The group bought 30% of a logistics company on 1 January 2026 for 210,000. The associate's 2026 profit was 80,000 and it paid dividends of 20,000.

Share of profit (in profit or loss): 30% × 80,000 = 24,000
Dividend received: 30% × 20,000 = 6,000
Investment at 31.12.2026: 210,000 + 24,000 − 6,000 = 228,000
Check: 210,000 + 30% × (80,000 − 20,000) = 228,000

The equity method in the first year

How it works

The equity method starts at cost and each year adds the investor's share of profit (or deducts its share of a loss). When the associate pays a dividend, part of that profit reaches the investor as cash, so the investment goes down.

Unlike a subsidiary, there is no NCI and intra-group balances are not cancelled line by line: the associate is not part of the group, it is an investment of the group.

Traps

Taught in the course

Why it exists

Key rules

Significant influence is the power to take part in the financial and operating policy decisions of the investee without controlling it.

Holding 20–50% of the votes is presumed to give significant influence; the presumption can be overturned by the facts.

Signs of influence: a seat on the board, taking part in policy-making, material transactions, an exchange of key staff, essential technical information.

In the consolidated statement of financial position: investment = cost + share of post-acquisition profit − dividends received (one line).

In the consolidated statement of profit or loss: the share of the associate's profit as one line; its revenue and expenses are not added. Under IFRS 18 this line is in the investing category, after operating profit.

Dividends from the associate reduce the investment and are not shown again as group income (that would count the profit twice).