What is Associates Accounting?
An associate is an entity over which an investor has significant influence, usually evidenced by an ownership interest of 20% to 50% of voting rights. Under IAS 28, investments in associates are accounted for using the equity method in consolidated and separate financial statements.
How It Works
- Initially record the investment at cost on the date significant influence is obtained.
- Each period, increase the carrying amount by the investor’s share of the associate’s profit, and decrease it by dividends received and the share of losses.
- Adjust for unrealised profits from transactions between the investor and the associate.
- Test the investment for impairment and disclose summarised financial information about the associate.
Saudi Context
Saudi groups with strategic minority stakes in Tadawul-listed peers or unlisted joint ventures apply IAS 28. CMA-reviewed financial statements show share of associate profit as a separate line in the income statement, and ZATCA considers dividends received from associates in zakat base calculations.
Example
A Saudi parent owns 30% of a Jeddah logistics company. The associate earns SAR 10 million; the parent recognises SAR 3 million share of profit and increases the investment’s carrying amount by the same amount.