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LEMBAGA PIAWAIAN PERAKAUNAN MALAYSIA
MALAYSIAN ACCOUNTING STANDARDS BOARD Investments in Associates The standards, which have been set in bold type, should be read in the context of the background material and implementation guidance in this Standard, and in the context of the Foreword to Financial Reporting Standards. Financial Reporting Standards are not intended to apply to immaterial items. Objective The objective of this Financial Reporting Standard is to prescribe the methods of accounting for investments in associates in an investor's consolidated financial statements as well as in its separate financial statements. Scope This Standard should be applied in accounting by an investor for investments in associates. This Standard supersedes MASB Approved Accounting Standard IAS 28, Accounting for Investments in Associates, issued previously by the Malaysian professional accountancy bodies.
Definitions The following terms are used in this Standard with the meanings specified: Associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture of the investor. Control (for the purpose of this Standard) is the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Cost method is a method of accounting whereby the investment is recorded at cost. The income statement reflects income from the investment only to the extent that the investor receives distributions from accumulated net profits of the investee arising subsequent to the date of acquisition. Equity method is a method of accounting whereby the investment is initially recorded at cost and adjusted thereafter for the post-acquisition change in the investor's share of net assets of the investee. The income statement reflects the investor's share of the results of operations of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control over those policies. Subsidiary is an enterprise that is controlled by another enterprise (known as the parent).
Significant Influence If an investor holds, directly or indirectly through subsidiaries, 20% or more of the voting power of the investee, it is presumed that the investor does have significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the investor holds, directly or indirectly through subsidiaries, less than 20% of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an investor from having significant influence. The existence of significant influence by an investor is usually evidenced in one or more of the following ways: representation on the board of directors or equivalent governing body of the investee; participation in policy making processes; material transactions between the investor and the investee; interchange of managerial personnel; or provision of essential technical information.
Equity Method Under the equity method, the investment is initially recorded at cost and the carrying amount is increased or decreased to recognise the investor's share of the profits or losses of the investee after the date of acquisition. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for alterations in the investor's proportionate interest in the investee arising from changes in the investee's equity that have not been included in the income statement. Such changes include those arising from the revaluation of property, plant, equipment and investments, from foreign exchange translation differences and from the adjustment of differences arising on business combinations.
Cost Method Under the cost method, an investor records its investment in the investee at cost. The investor recognises income only to the extent that it receives distributions from the accumulated net profits of the investee arising subsequent to the date of acquisition by the investor. Distributions received in excess of such profits are considered a recovery of investment and are recorded as a reduction of the cost of the investment in accordance with FRS 1252004, Accounting for Investments.
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