IAS 28 Investments in Associates and Joint Ventures: A Practical Guide

IAS 28 Investments in Associates and Joint Ventures is the accounting standard that governs how an investor accounts for investments where it has significant influence, but not control. It centres on a single important technique: the equity method. This practical guide explains what IAS 28 covers, what an associate and a joint venture are, how the equity method works, and why it matters — in plain language. It's a core financial-reporting topic, relevant to ACCA study and connects to group accounting more broadly.

What is IAS 28?

IAS 28 prescribes the accounting for associates and joint ventures — investments that sit between a simple financial investment and a controlled subsidiary. Where an investor has control over another entity, it is a subsidiary (consolidated under IFRS 10). Where the investor has only significant influence or joint control, IAS 28 applies, and the investment is accounted for using the equity method rather than full consolidation.

What is an associate?

An associate is an entity over which the investor has significant influence — the power to participate in the financial and operating policy decisions of the entity, but not control or joint control over those policies. Significant influence is presumed when the investor holds 20% or more (but not more than 50%) of the voting power, unless it can be clearly shown otherwise. Other indicators include board representation, participation in policy-making, material transactions between the parties, interchange of management, and the provision of essential technical information.

What is a joint venture?

A joint venture is a type of joint arrangement in which the parties that have joint control have rights to the net assets of the arrangement (rather than rights to specific assets and obligations for liabilities, which would be a "joint operation"). Joint control means the contractually agreed sharing of control, where decisions about the relevant activities require the unanimous consent of the parties sharing control. Like associates, joint ventures are accounted for using the equity method.

How the equity method works

The equity method is the heart of IAS 28. Under it:

• The investment is initially recognised at cost.
• The carrying amount is then increased or decreased to reflect the investor's share of the post-acquisition profits or losses of the associate or joint venture. The investor's share of profit is recognised in its own profit or loss.
• Dividends received from the associate or joint venture reduce the carrying amount of the investment (they are a return of part of the investment, not separate income).
• The investor's share of the investee's other comprehensive income is recognised in the investor's OCI.

In effect, the equity method brings in the investor's share of the investee's performance, line by line through a single investment figure — reflecting the economic substance of significant influence without full consolidation. The investment is also tested for impairment.

A simple example

Suppose an investor buys 30% of an associate for £500,000. That investment starts at its £500,000 cost. If the associate then makes a profit of £200,000 in the year, the investor recognises its 30% share — £60,000 — in its own profit or loss, and increases the carrying amount of the investment to £560,000. If the associate then pays a total dividend of £50,000, the investor's 30% share (£15,000) reduces the carrying amount to £545,000. The single investment line therefore tracks the investor's evolving economic interest.

Why IAS 28 matters

IAS 28 matters because investments carrying significant influence or joint control are common, and they need to be reflected in a way that captures the investor's real economic interest — more than a passive shareholding, but less than a controlled subsidiary. The equity method strikes that balance. For accountants, understanding when significant influence exists, and how to apply the equity method (especially the treatment of profits and dividends), is a fundamental and frequently-examined area of group accounting.

Frequently asked questions

What is IAS 28?

The international standard on Investments in Associates and Joint Ventures, prescribing the equity method for investments where the investor has significant influence or joint control, but not control.

What is an associate?

An entity over which the investor has significant influence — the power to participate in policy decisions but not control. It is presumed when 20–50% of voting power is held, unless shown otherwise.

How does the equity method work?

The investment starts at cost and is adjusted for the investor's share of the investee's post-acquisition profits or losses (recognised in profit or loss); dividends received reduce the carrying amount.

What's the difference between an associate and a subsidiary?

A subsidiary is controlled by the investor and is fully consolidated; an associate is only significantly influenced and is accounted for using the equity method, not consolidation.

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