How is an investment in an associate accounted for in the consolidated financial statements?

Answer options:

By line-by-line consolidation of assets and liabilities

Using the equity method

At fair value through profit or loss only

Proportionate consolidation

How to approach this question

Identify the accounting method prescribed by IAS 28 for associates.

Full Answer

B.Using the equity method✓ Correct

Under IAS 28, investments in associates (where significant influence exists) are accounted for using the equity method. The investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor's share of the investee's net assets.

Common mistakes

Confusing associate accounting with subsidiary consolidation.

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Practice the full ACCA FA — Financial Accounting Practice Exam 2

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