FAC 3704
GROUP FINANCIAL REPORTING
LEARNING UNIT 1: BUSINESS COMBINATIONS
TYPES OF INVESTMENT IN AN ENTITY
1. Control
Investor (Parent) controls entity (Subsidiary)
What is control?
a) Power over the investee
Have existing rights that give current ability to direct all relevant activities of the
investee (majority voting rights).
b) Have exposure to variable returns through relationship with investee (dividends).
c) Ability to use its power to affect the amount of returns
Accounting method used is consolidation.
2. Joint Control
Two or more entities share joint control over one entity in terms of a contractual
agreement. The investors can be in one of two joint arrangements:
a) Joint Venture – Equity Accounting
b) Joint Operation – Share of Assets, liabilities, incomes and expenses
3. Significant Influence
Investee is an associate of the investor when the investor has significant influence over the investee.
The equity account method is used.
4. Simple Investment
This is a simple investment in shares accounted for at fair value as per IFRS 9.
GROUP FINANCIAL REPORTING
LEARNING UNIT 1: BUSINESS COMBINATIONS
TYPES OF INVESTMENT IN AN ENTITY
1. Control
Investor (Parent) controls entity (Subsidiary)
What is control?
a) Power over the investee
Have existing rights that give current ability to direct all relevant activities of the
investee (majority voting rights).
b) Have exposure to variable returns through relationship with investee (dividends).
c) Ability to use its power to affect the amount of returns
Accounting method used is consolidation.
2. Joint Control
Two or more entities share joint control over one entity in terms of a contractual
agreement. The investors can be in one of two joint arrangements:
a) Joint Venture – Equity Accounting
b) Joint Operation – Share of Assets, liabilities, incomes and expenses
3. Significant Influence
Investee is an associate of the investor when the investor has significant influence over the investee.
The equity account method is used.
4. Simple Investment
This is a simple investment in shares accounted for at fair value as per IFRS 9.
