I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

Material transactions between investor and investee 

(d) Interchange 

of 

management personnel 

(e) Provision 

of 

essential technical information 

(IAS 28, paras. 5–6) 

 

3.2 Equity method  

IAS 28 requires the use of the equity method of accounting (or 'equity accounting') for investments in 

associates (with certain exceptions, but these are beyond the scope of this syllabus).  (IAS 28, para. 16)  

3.2.1 Consolidated statement of profit or loss 

The basic principle of equity accounting is that the investing company (P Co) should take account of its 

share of the earnings of the associate, A Co, whether or not A Co distributes the earnings as dividends.  

P Co achieves this by adding to consolidated profit the group's share of A Co's profit after tax. 

 EXAM FOCUS POINT 

In your exam, you may be asked to define significant influence or to determine whether an entity is an 

associate. The ACCA examining team has commented that students need to be able to describe the 

principle of equity accounting.  

Furthermore, in the January to June 2015 exam report, the ACCA examining team re-iterated that 

candidates need to have an understanding of IAS 28, in particular the application of equity accounting.

BPP Tutor Toolkit Copy

---

CHAPTER 23  

//

  INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS