Acca financial Accounting (FA) Study Text ac ca (FA)

control over those policies'

 (IAS 28, para 3). 

An 

investor 

is an entity which owns a shareholding in another entity. An 

investee

 is an entity in which another entity has a shareholding. 

An investor is presumed to have significant influence over another entity when it 

has a shareholding in that other entity between 20% and 50%. 

Principles of equity accounting and reasoning behind it  

Equity accounting 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 associate. 

The effect of this is that the consolidated statement of financial position 

includes: 

•

 

100% of the assets and liabilities of the parent and subsidiary entity on a 

line

­

by

­

line basis 

•

 

a single ‘investments in associates’ line within non

­

current assets which 

includes the group share of the assets and liabilities of any associate. 

The consolidated statement of profit or loss includes: 

•

 

100% of the income and expenses of the parent and subsidiary entity on a 

line

­

by

­

line basis 

•

 

a single ‘share of profit of associates’ line which includes the group share 

of any associate’s profit after tax. 

Note:

 In order to equity account, the parent entity must already be producing 

consolidated financial statements (i.e. it must already have at least one 

subsidiary). 

 

 

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