IAS 28 · Free study guide
IAS 28 Investments in Associates and Joint Ventures Summary
Last updated 13 September 2026 · Written by the AccountingTutorAI team · Reviewed by a qualified CPA (Canada)
Quick summary
IAS 28 sets out how to account for investments in associates and joint ventures once an investor has significant influence but not control. Rather than combining the associate's assets and liabilities line-by-line the way a parent does with a subsidiary under IFRS 10, the investor uses the equity method: the investment starts at cost and its carrying amount then moves each period with the investor's share of the associate's profit or loss and other comprehensive income. Dividends received reduce that carrying amount rather than being recognised as income, unrealised profits on transactions between the investor and the associate are eliminated to the extent of the investor's interest, and the whole investment — not just any implied goodwill — is tested for impairment as a single asset under IAS 36 whenever indicators suggest it might be impaired. Getting the equity method right matters for ACCA SBR Question 1 group scenarios and for real consolidated financial statements: it's the standard most exam markers expect candidates to apply cleanly, and one of the most common places marks are lost through dividend double-counting or a forgotten unrealised-profit adjustment.
What counts as significant influence
IAS 28 applies once an investor has significant influence over another entity — the power to participate in its financial and operating policy decisions, without control (IFRS 10) or joint control (IFRS 11) over those decisions. Holding 20% or more of the voting power creates a rebuttable presumption of significant influence; holding less than 20% creates the opposite presumption. Both presumptions can be overturned by the facts (IAS 28.5–IAS 28.6).
- Representation on the board of directors or equivalent governing body of the investee
- Participation in policy-making processes, including decisions about dividends and other distributions
- Material transactions between the investor and the investee
- Interchange of managerial personnel between the two entities
- Provision of essential technical information to the investee
A single indicator is rarely decisive on its own — SBR scenarios tend to pair a shareholding just under or over 20% with one or two of these indicators and expect candidates to weigh them together, not just cite the percentage.
How the equity method actually works
The investment is initially recognised at cost on the acquisition date (IAS 28.10). After that, the carrying amount is adjusted every period, not held static: it increases by the investor's share of the associate's post-acquisition profit, and moves with the investor's share of the associate's other comprehensive income. The investor's share of profit is recognised in the investor's own profit or loss, typically as a single 'share of profit of associates' line — the associate's individual revenue, expenses, assets and liabilities are never brought onto the investor's statements line by line the way they would be for a subsidiary.
Dividends received from the associate are not recognised as income. Because the investor already recognised its share of the associate's profit when it was earned, recognising the dividend again as income would double-count it. Instead, the dividend is treated as a partial return of the investment and reduces the carrying amount.
Need the exact paragraph text? The AI Tutor quotes the official licensed IFRS Standards word-for-word.
Try the AI TutorEliminating unrealised profits on transactions with the associate
Profits on transactions between the investor and its associate are unrealised, from the group's perspective, to the extent the relevant goods or services are still held by the buyer at the reporting date. IAS 28 requires these unrealised profits to be eliminated, but only to the extent of the investor's interest in the associate (IAS 28.28) — unlike full consolidation, where 100% of intra-group profit is eliminated regardless of any non-controlling interest.
- Downstream sale (investor to associate): the investor sells inventory to its 30%-held associate at a profit; whatever portion is still on the associate's shelves at year end carries unrealised profit, and 30% of that unrealised profit is eliminated against the investment and against the investor's share of profit.
- Upstream sale (associate to investor): the associate sells equipment to its 25% investor at a profit; if the investor still holds that equipment at year end, 25% of the unrealised profit is eliminated against the investor's share of the associate's profit and against the investor's own asset.
When the associate's losses exceed the investment
The investor keeps recognising its share of the associate's losses only until the carrying amount of its net investment — the equity-accounted carrying amount plus any long-term interests that, in substance, form part of the investor's net investment, such as long-term receivables with no fixed repayment plan — is reduced to nil (IAS 28.38). Further losses are recognised only to the extent the investor has incurred legal or constructive obligations, or made payments, on the associate's behalf.
Impairment of the investment
When indicators suggest the investment might be impaired, the entire carrying amount is tested as a single asset under IAS 36 against its recoverable amount — not just any goodwill implicit in the original cost. Any impairment loss is allocated to the investment as a whole; separately identifying and impairing a goodwill component is not permitted (IAS 28.40–IAS 28.42).
When equity accounting stops
Equity accounting stops from the date the investor loses significant influence or joint control — for example through disposal, dilution, or a change in the investee's governance arrangements. From that date the retained interest, if any, is remeasured to fair value with any resulting gain or loss recognised in profit or loss, and the investment is reclassified (including, where relevant, as held for sale under IFRS 5) as the facts require.
A 2026 update worth knowing
In June 2026 the IASB finalised targeted amendments to IAS 28 clarifying the scope of the fair value option that lets certain eligible investors measure associates and joint ventures at fair value through profit or loss instead of using the equity method; the amendments take effect when an entity first applies IFRS 18 (periods beginning on or after 1 January 2027, or earlier if IFRS 18 is adopted early).
Worked example: equity accounting a 30% associate
Investor acquires 30% of Associate Co for $600,000 cash on 1 January Year 1. During Year 1, Associate Co reports profit of $200,000 and pays a $100,000 dividend. Also during the year, Investor sells inventory to Associate Co for $50,000 (cost $40,000, so $10,000 profit); 40% of those goods are still in Associate Co's inventory at 31 December Year 1.
| CU | |
|---|---|
| Cost on acquisition (1 Jan Year 1) | 600,000 |
| Share of associate's profit (30% × 200,000) | 60,000 |
| Less: unrealised profit adjustment (see note) | (1,200) |
| Less: dividend received (30% × 100,000) | (30,000) |
| Closing carrying amount, 31 Dec Year 1 | 628,800 |
Unrealised profit: downstream sale profit $10,000; 40% still held by Associate Co at year end = $4,000 unrealised; eliminated to the extent of Investor's 30% interest = $1,200.
| Account | Dr (CU) | Cr (CU) |
|---|---|---|
| Investment in associate | 600,000 | |
| Cash | 600,000 |
| Account | Dr (CU) | Cr (CU) |
|---|---|---|
| Investment in associate | 58,800 | |
| Share of profit of associate (P&L) | 58,800 |
| Account | Dr (CU) | Cr (CU) |
|---|---|---|
| Cash | 30,000 | |
| Investment in associate | 30,000 |
The income statement shows only the net $58,800 'share of profit of associate' line (30% × 200,000 = 60,000, less the 1,200 unrealised-profit adjustment) — Associate Co's own revenue and expenses never appear anywhere in Investor's statements. The two most common ways candidates lose marks here: recognising the $30,000 dividend as income on top of the equity-accounted share of profit (double-counting), and forgetting the unrealised-profit adjustment on the downstream sale entirely.
Test yourself: 5 IAS 28 practice questions
1. Parent holds 15% of Associate's voting shares but has a seat on Associate's board and regularly participates in its dividend policy decisions. Under IAS 28, how should Parent classify this investment?
- A. As a subsidiary, because board representation gives control
- B. As a simple financial asset under IFRS 9, because the holding is below 20%
- C. As an associate, because qualitative indicators of significant influence are present despite the holding being below 20%
- D. As a joint venture, because Parent shares control with other investors
Show answer
Correct answer: C
The 20% threshold is only a rebuttable presumption. Board representation and participation in policy-making (including dividend decisions) are indicators that can establish significant influence even below 20%. A is wrong because board representation alone does not give control — control requires power over relevant activities plus exposure to variable returns under IFRS 10. B is wrong because the presence of these indicators overrides a simple percentage test. D is wrong because nothing in the facts describes joint control shared contractually with other investors.
2. An investor's associate declares and pays a cash dividend. How does the investor account for its share of that dividend under the equity method?
- A. Recognise it as dividend income in profit or loss
- B. Recognise it in other comprehensive income
- C. Reduce the carrying amount of the investment in the associate
- D. Recognise it as a direct reduction to retained earnings, bypassing both profit or loss and the investment account
Show answer
Correct answer: C
The investor already recognised its share of the associate's profit (which funded the dividend) when that profit was earned. Recognising the dividend again as income would double-count it, so instead it reduces the investment's carrying amount as a partial return of investment. A double-counts profit already recognised. B misapplies OCI, which is not where equity-accounted profit or its distribution is recognised. D is not the required treatment — the reduction runs through the investment account, not directly through equity.
3. Investor's 25% share of Associate's losses this year is $90,000, but the carrying amount of the investment (including long-term interests that are part of the net investment) is only $70,000, and Investor has no obligation to fund further losses. How much loss does Investor recognise?
- A. $90,000, the full share of losses
- B. $70,000, limited to the carrying amount of the net investment, with no liability recognised for the excess
- C. $70,000, and Investor recognises a provision for the remaining $20,000
- D. Nil, because equity accounting stops as soon as an associate reports any loss
Show answer
Correct answer: B
Loss recognition stops once the net investment is reduced to nil; without a legal or constructive obligation to fund further losses, the excess $20,000 is simply not recognised. A ignores the nil floor. C is wrong because a provision requires an obligation, which the facts say does not exist. D misunderstands the rule — equity accounting does not stop merely because a loss is reported, only once the investment is exhausted.
4. At year end, indicators suggest an investor's associate may be impaired. How is impairment tested under IAS 28?
- A. Test any goodwill embedded in the cost of the investment separately first, then test the remaining carrying amount
- B. Test the entire carrying amount of the investment as a single asset under IAS 36, comparing it to recoverable amount
- C. Impairment testing does not apply to equity-accounted investments
- D. Reduce the investment by the associate's reported loss for the year only
Show answer
Correct answer: B
IAS 28 requires the whole investment to be tested as one asset under IAS 36; because goodwill is not separately recognised within the investment's carrying amount, it cannot be separately impairment-tested. A describes a treatment the standard specifically prohibits. C is wrong — equity-accounted investments are within the scope of impairment testing. D confuses an ordinary equity-method loss allocation with an impairment loss, which is a separate test against recoverable amount.
5. Investor sells down its stake in Associate and loses board representation and all influence over policy decisions, though it retains a small residual holding. What happens to the equity-accounted carrying amount at the point significant influence is lost?
- A. Equity accounting continues unchanged until the residual shares are fully sold
- B. The investor restates all prior periods as if the investment were always a financial asset
- C. Equity accounting ceases; the retained residual interest is remeasured to fair value, with any difference from the former carrying amount recognised in profit or loss
- D. The residual interest is automatically reclassified as held for sale under IFRS 5
Show answer
Correct answer: C
Loss of significant influence ends equity accounting from that date; the residual interest is remeasured to fair value and the resulting gain or loss goes through profit or loss. A ignores that the trigger is loss of influence, not full disposal. B is not required — there is no retrospective restatement. D is not automatic; held-for-sale classification under IFRS 5 only applies if the specific IFRS 5 criteria are separately met.
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Start freeFrequently asked questions
What is significant influence under IAS 28?
The power to participate in an investee's financial and operating policy decisions without controlling those decisions. It's presumed at 20% or more of the voting power (and presumed absent below 20%), but either presumption can be rebutted by indicators such as board representation, involvement in policy-making, material transactions, shared management, or the provision of essential technical information.
How does the equity method work?
The investment starts at cost. Each period, its carrying amount is increased by the investor's share of the associate's profit and adjusted for the investor's share of the associate's other comprehensive income, then reduced by any dividends received. The investor's share of profit appears as a single line in profit or loss — the associate's own revenue and expenses are never combined line by line with the investor's.
Are associates consolidated like subsidiaries?
No. Subsidiaries are fully consolidated — their assets, liabilities, revenue and expenses are combined with the parent's line by line. Associates are equity accounted — the investor shows a single 'investment in associate' line that moves with its share of the associate's profit or loss, not a line-by-line combination.
Do dividends from associates count as income?
No. Because the investor already recognised its share of the associate's profit when it was earned, a subsequent dividend simply reduces the carrying amount of the investment rather than being recognised again as income.
How are investments in associates tested for impairment?
The entire carrying amount of the investment is tested as a single asset under IAS 36, compared to its recoverable amount. Any goodwill implicit in the original cost is not separately identified or separately impairment-tested.
What's the difference between an associate and a joint venture?
Both are equity accounted under the same mechanics, but the basis for including them differs: an associate arises from significant influence alone, while a joint venture arises from joint control — a contractual arrangement where decisions require the unanimous consent of the parties sharing control (IFRS 11).