IPSAS 36
Active
Investments in Associates and Joint Ventures
Prescribes the accounting for investments in associates and joint ventures – the equity method as the core, the 20% significant-influence presumption, held-for-sale classification, discontinuance of the equity method, the deficit floor, and impairment of the net investment. Effective 1 January 2017. (IAS 28 equivalent; supersedes IPSAS 7.)
Active Standard
IPSAS 36 Investments in Associates and Joint Ventures is the current, active standard issued by the IPSASB for accounting for associates and joint ventures over which an entity has significant influence – using the equity method. Effective for periods beginning on or after 1 January 2017 (earlier application encouraged). Paras. 1–50. It supersedes IPSAS 7.
IPSAS 36 is the IPSASB's adaptation of IAS 28 (Amended 2011) for the public sector – keeping the equity-method mechanics, the 20% significant-influence presumption and the deficit-floor rule, but with public-sector commentary on service potential and non-distributed profits.
1
Objective, Scope & Quantifiable Ownership Interests (paras. 1–5)
Objective & scope (para. 1)
Prescribes the accounting for investments in associates and joint ventures over which the investor has SIGNIFICANT INFLUENCE, using the equity method. Recognises the investment at cost and adjusts it for the investor's share of profit/loss and other comprehensive income.
Key definitions
Associate
An entity over which the investor has significant influence.
Joint venture
A contractual arrangement giving rise to two or more parties' joint control.
Scope (para. 5)
In scopeOut of scope
Equity-method associates/JVsInvestments in subsidiaries (IPSAS 35)
JV interest (joint control)Joint operations (IPSAS 37)
Held-for-trading associates are measured at FVOCI; the equity method applies to the rest.
2
Definitions (para. 8)
Significant influence (para. 8)
Significant influence = the power to participate in the FINANCIAL and OPERATING policy decisions of the investee, but NOT control. Presumption arises at ≥20% ownership (voting or economic), rebuttable by facts.
≥20% ownershipParticipation in policyNot controlRebuttable presumption
3
Significant Influence – the 20% Presumption (paras. 10–15)
20% rule (para. 10)
A 20% or greater stake (voting OR economic interest) creates a PRESUMPTION of significant influence. Rebut it where the entity can demonstrate it does NOT participate in policy decisions – e.g. a purely passive market-holder.
Voting rights ≥20%Economic interest ≥20%Passive holder can rebutParticipation in policy = influence
4
The Equity Method – Core Mechanics (paras. 16–21)
Share of profits (para. 16)
EntryTreatment
Associate profitRecognise investor's share in P&L
Associate OCIRecognise share – no reclassification
Dividends receivedReduce carrying amount (not P&L)
Negative goodwill is NOT recognised separately – it is part of the associate's carrying amount.
5
Application & Exemptions (paras. 22–25)
When equity method applies (para. 22)
The equity method is used for all associates and joint ventures unless the entity is an investment entity applying IPSAS 34's FVOCI, or the interest is held for trading. Separate financial statements can use the cost model instead.
ScenarioModel
All associates/JVsEquity method
Investment entityFVOCI (IPSAS 34)
6
Held for Sale, Discontinuing the Equity Method & Category Changes (paras. 25A–27)
Classification changes (para. 25A)
If an associate/JV interest is classified as held for sale, the equity method is DISCONTINUED from the classification date – the investment is measured at the lower of cost and FV less costs to sell, and the associate's profit/loss is no longer recognised going forward.
Reassessment of significant influence (e.g. stake falls below 20%) triggers a switch to the cost/FVOCI model, with a catch-up in profit or loss.
7
Changes in Ownership Interest
Buy-in/sell-down (para. 28)
A change in the ownership percentage that does NOT affect the entity's scope of consolidation (still an associate/JV) is accounted for as a TRANSACTION between equity holders: the associate's share of profit/loss is adjusted, and the difference is attributed to NCI-equivalent – no gain/loss in profit or loss.
Profits with self
Eliminated within the investor's share; not P&L.
8
Equity Method Procedures – Upstream/Downstream & Uniform Policies (paras. 29–34B, 37–40)
Upstream/downstream (para. 29)
TransactionTreatment
Sale from investor to associateDefer unrecognised profit; eliminate on resale
Sale from associate to investorDefer; eliminate against associate's profit
Uniform accounting POLICIES must be applied to the same transactions/events – else reconcile.
9
Acquisition Accounting & Reporting Date Alignment (paras. 35–36)
Reporting dates (para. 35)
A change in the accounting period of the associate/JV that does NOT result in a change in the investor's fiscal year-end is permitted. If it DOES change the investor's year-end, the investor adjusts its own reporting period to remain aligned.
Associate period change OKInvestor-year change → adopt associate's
10
The Deficit Floor – When Losses Exceed the Investment (paras. 41–42)
Floor check (para. 41)
If the associate's losses exceed the investor's share of net assets (the 'deficit floor'), the investor does NOT recognise further losses in profit or loss UNLESS it has an obligation or expectation to fund the deficit (e.g. a guarantee). The carrying amount is not reduced below zero.
Deficit floor
Carrying amount of an associate not reduced below zero; excess losses not recognised.
11
Impairment of the Net Investment
CV check (para. 43)
If the carrying amount of an associate/JV (the net investment) is reduced below its fair value less costs to sell, it is impaired. The investor recognises an impairment loss to bring the carrying amount down to recoverable amount, with reversal subsequently.
Separate from the equity-method share of associate losses – this is an investment-level impairment.
12
Separate Financial Statements & Transitional Provisions (paras. 49–50)
Separate FS (para. 49)
When an entity presents separate financial statements, it may measure investments in associates/JVs at cost (subject to IPSAS 31/39 impairment) OR continue the equity method. Transition uses the same deemed-cost approach as other first-time adoptions.
Model availableLedger
Cost modelAsset Register → cost/less impairment
Equity methodAssociate Module → share of P&L
13
Effective Date & Amendment Timeline (paras. 51–51D)
Timeline
DateEvent
Jan 2015Issued
1 Jan 2017Effective date
2017Amended (latest)
IPSAS 36 superseded IPSAS 7 (Investments in Associates); transition is prospective.
14
Relationship to IAS 28
Twin (para. 51E)
IPSAS 36 mirrors IAS 28 (2011) – equity-method mechanics, the 20% presumption, held-for-trading FVOCI, deficit floor and upstream/downstream rules – but with IPSAS public-sector commentary (non-distributed profits, service potential) and explicit alignment with IPSAS 35/37/38.
IAS 28 equity methodIPSAS 36 sameIAS 28 20% presumptionIPSAS 36 sameIAS 28 deficit floorIPSAS 36 same
15
Statement / Process Mapping
Where it flows
ProcessLedger
Associate accountingEquity-method module → share of P&L/OCI
Upstream/downstreamTrade reconciliation → defer/unrealise
Impairment testingInvestment register → CV less cost to sell
16
Related Standards – Cross-Reference Map
See also
StandardRelation
IPSAS 34Separate-statements FVOCI option
IPSAS 37Joint arrangements
IPSAS 35Subsidiaries (not 36)
IAS 28Direct equivalent
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Quick-Reference Glossary
Associate
Entity over which investor has significant influence.
Significant influence
Power to participate in policy, but not control.
Equity method
Associate share of profit/loss & OCI recognised.
Deficit floor
Investment carrying amount not reduced below zero.
Upstream/downstream
Sale between investor & associate; profit deferred.
Held for sale
Equity method discontinued; measured at lower of cost/FV.