Ind AS 28 prescribes the accounting for investments in associates and sets out the requirements for applying the equity method when accounting for investments in both associates and joint ventures. An associate is an entity over which the investor has significant influence; a joint venture is a joint arrangement in which the parties have rights to the net assets. Under Ind AS, both are accounted for using the equity method — a notable point, because it means joint ventures are equity-accounted rather than proportionately consolidated as under the AS framework.
Objective and scope
The objective is to prescribe the accounting for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The standard is applied by all entities that are investors with joint control of, or significant influence over, an investee. It works alongside Ind AS 111 (which classifies joint arrangements) and Ind AS 110 (consolidation).
Associate, joint venture, and significant influence
An associate is an entity over which the investor has significant influence. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement (as classified under Ind AS 111).
Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control of those policies. As under AS 23, there is a presumption based on voting power: if an entity holds, directly or indirectly, 20% or more of the voting power of the investee, it is presumed to have significant influence unless it can be clearly demonstrated that this is not the case; and if it holds less than 20%, it is presumed not to have significant influence unless such influence can be clearly demonstrated. Significant influence may be evidenced by board representation, participation in policy-making, material transactions, interchange of managerial personnel, or provision of essential technical information.
The equity method
Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the acquisition date. The investor's share of the investee's profit or loss is recognised in the investor's profit or loss. Distributions (dividends) received from the investee reduce the carrying amount of the investment (they are not recognised as income, because the investor's share of profit has already been recognised). Adjustments to the carrying amount are also made for the investor's share of changes in the investee's other comprehensive income — the investor recognises its share of the investee's OCI in its own OCI.
At acquisition, any difference between the cost of the investment and the investor's share of the net fair value of the investee's identifiable assets and liabilities is accounted for as follows: goodwill relating to the associate or joint venture is included in the carrying amount of the investment (and is not separately tested for impairment or amortised); any excess of the investor's share of net fair value over cost is included as income in determining the investor's share of profit or loss in the period of acquisition. Unrealised profits and losses on transactions between the investor and its associate or joint venture are eliminated to the extent of the investor's interest.
Losses, discontinuing the equity method, and impairment
If the investor's share of losses of an associate or joint venture equals or exceeds its interest in the investee, the investor discontinues recognising its share of further losses; additional losses are recognised only to the extent that the investor has incurred legal or constructive obligations or made payments on behalf of the investee.
An entity discontinues the use of the equity method from the date the investment ceases to be an associate or joint venture. If the retained interest is a financial asset, it is measured at fair value, and the difference is recognised in profit or loss.
Impairment: after applying the equity method, the investor determines whether there is objective evidence that the investment is impaired; if so, it applies Ind AS 36, comparing the recoverable amount of the investment with its carrying amount and recognising any impairment loss. Because the goodwill within the investment is not separately tested, the entire carrying amount is tested as a single asset.
A brief illustration
An investor holds 30% of an associate, acquired for ₹60 lakh (which equalled 30% of the fair value of the associate's net assets at that date, so no goodwill). In the following year, the associate earns a profit of ₹40 lakh, recognises OCI of ₹5 lakh, and pays a total dividend of ₹10 lakh. Under the equity method, the investor recognises its 30% share of profit (₹12 lakh) in its profit or loss and its 30% share of OCI (₹1.5 lakh) in its own OCI, increasing the carrying amount to ₹73.5 lakh; the dividend received (30% of ₹10 lakh = ₹3 lakh) then reduces the carrying amount to ₹70.5 lakh and is not shown as income. If the investor also had a joint venture, it would account for that the same way — equity method — rather than proportionately consolidating it, which is the key contrast with the AS framework.
How Ind AS 28 compares with AS 23 and AS 27
Ind AS 28 combines, in a single standard, the equity accounting for both associates and joint ventures, and this is where the frameworks diverge. Under the AS framework, associates in consolidated statements are dealt with by AS 23 using the equity method (similar to Ind AS 28 for associates), but joint ventures are dealt with separately by AS 27 using proportionate consolidation — a venturer brings in its line-by-line share of the joint entity's assets, liabilities, income, and expenses. Under Ind AS 28, joint ventures are accounted for using the equity method, and proportionate consolidation is not permitted for them. So the headline difference is the treatment of joint ventures: equity method (Ind AS) versus proportionate consolidation (AS). For associates, the two frameworks are broadly similar, with Ind AS 28 differing mainly in that goodwill within the investment is not separately tested (the whole investment is impairment-tested under Ind AS 36) and the investor recognises its share of the investee's OCI in its own OCI (a consequence of the OCI concept).
Common pitfalls
Recurring issues include proportionately consolidating a joint venture (not permitted under Ind AS — the equity method applies); recognising dividends from an associate or joint venture as income rather than reducing the carrying amount; continuing to recognise the investor's share of losses below a nil carrying amount without an obligation to do so; failing to recognise the investor's share of the investee's OCI in the investor's own OCI; and misjudging significant influence by mechanically applying the 20% threshold without regard to substance.
Why this is cleaner on a unified system
Equity accounting for associates and joint ventures requires reliably tracking the investor's share of the investee's post-acquisition profit or loss, OCI, and distributions, adjusting the carrying amount accordingly, and eliminating unrealised profits on transactions with the investee. This is far easier when the group's records and the consolidation process draw on connected, consistent data, so that the equity-accounted carrying amount can be computed and rolled forward and the required disclosures produced without reconciling the investee's results against separately maintained investment records.
This article is a detailed educational summary of Ind AS 28 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of Ind AS 28 as notified under the Companies Act before relying on it, and consult a qualified chartered accountant for application to your specific circumstances.