An associate is an entity over which another entity can exercise SIGNIFICANT INFLUENCE. Significant influence refers to the ability to participate in, but not control the financial and operating policy decisions of an entity.
A shareholding of > 20% is normally assumed to give significant influence.
An important distinction is that if the balance of interest is owned by a single entity/individual, or by a diverse body of shareholders acting in concert, then significant influence cant be said to exist. i.e. if Company A owns 40% of Company B, and the balance of 60% is owned by Company C, then B cant be said to be an associate of Company A. If however, the 60% shareholding is by several investors and they are not acting in concert as a group, then Company B is an associate.
Associates are not consolidated but are equity accounted for.
The equity method is basically:
Cost of investment XXX
Add group's share of associate's post acquisition profits XXX
Less impairment losses, if any (XXX)
=Amount recognised in the Statement of Financial Position XXX
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