Associate
Definition
A company over which an investor has significant influence but not control, usually shown by holding 20 percent or more of the votes. It is included in the group accounts by the equity method.
Why does it matter in a group?
An associate is outside the group’s line-by-line accounts. The investor shows one line in its balance sheet for the investment, and one line in profit or loss for its share of the result, using the equity methodEquity methodA way of including an associate or joint venture: the investment starts at cost and is adjusted each period for the investor's share of the investee's profit or loss and other changes in its net assets.Open the glossary entry.1 Balances and sales with an associate are not eliminated the way they are with a subsidiarySubsidiaryA company that is controlled by another company, its parent.Open the glossary entry, because the associate is not part of the group. The 20 percent presumption can be overturned, but only when the investor can clearly show it has no significant influence.
A small example
Zenvara holds 30 percent of Orrin Labs. Orrin earns a profit of GBP 400,000. Zenvara’s share is GBP 120,000. It appears on one line, and the investment in the balance sheet rises by the same amount.
Sources
- IAS 28 Investments in Associates and Joint Ventures, paragraphs 3 and 5.