Equity accounting

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Associate investment in parent FS

Equity accounting brings an associate investment into the parent company’s financial statements initially at cost.

The basic principle of equity accounting is that P Co should take account of its share of the earnings of A Co whether or not A Co distributes the earnings as dividends.  A’s sales revenue, cost of sales, expenses and revenue are not added with those of the group. Instead the group share only of A’s profit after tax is included in the consolidated statement of profit or loss as a single amount.

P Co should also include its share of A Co’s other comprehensive income in its consolidated statement of comprehensive income.

In the consolidated statement of financial position, the associate is included as a non-current asset investment, calculated as

$'000
cost of investment x
p’s share of post acquisition profits of a x
less: impairment losses of a x
---
x
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