What is Associate Accounting?
An associate is an entity over which the investor has significant influence, but not control or joint control. Under IAS 28, investments in associates are accounted for using the equity method: the investor recognizes its share of the associate’s profit or loss and adjusts the carrying amount accordingly.
How It Works
- Initial recognition at cost.
- Add the investor’s share of post-acquisition profit, deduct losses and dividends.
- Test the carrying amount for impairment whenever indicators arise.
- Disclose the associate’s summarized financials when material.
Saudi Context
Saudi diversified holding groups often report several associates on their balance sheets, requiring careful equity method tracking across different reporting calendars.
Example
If the investor pays SAR 100 million for a 30 percent stake, and the associate earns SAR 20 million and pays SAR 5 million in dividends, the carrying amount becomes 100 + (0.30 x 20) – (0.30 x 5) = SAR 104.5 million.