1. What IND AS 28 Covers — Objective and Scope
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 associates and joint ventures. It applies to all entities that are investors with joint control of, or significant influence over, an investee, requiring the equity method to be applied in both consolidated and separate financial statements, unless a specific exemption applies (e.g. the investment is held by an entity that is itself a venture capital organisation, mutual fund, unit trust, or similar, and is designated at fair value through profit or loss).
2. Significant Influence — The 20% Presumption
Significant influence is the power to participate in the financial and operating policy decisions of the investee, without control or joint control over those policies. Holding, directly or indirectly, 20% or more of the voting power of an investee is presumed to give significant influence, unless it can be clearly demonstrated otherwise. Holding less than 20% is presumed not to give significant influence, unless such influence can be clearly demonstrated.
Beyond the voting-power threshold, significant influence is evidenced in practice by representation on the board of directors, participation in policy-making processes, material transactions between the investor and investee, interchange of managerial personnel, or provision of essential technical information.
3. The Equity Method — How It Works
Initial recognition
The investment is recognised initially at cost.
Subsequent adjustment for profit or loss
The carrying amount is increased or decreased to recognise the investor's share of the investee's profit or loss after the acquisition date — recognised in the investor's own profit or loss.
Subsequent adjustment for OCI
The investor's share of the investee's other comprehensive income is also recognised in the investor's OCI.
Distributions (dividends) received from the investee reduce the carrying amount of the investment — they are not recognised as income, since the investor's share of profit was already picked up when earned, not when distributed.
4. Losses Exceeding the Investment's Carrying Amount
If an investor's share of losses of an associate or joint venture equals or exceeds its interest in that investee, the investor stops recognising its share of further losses once the carrying amount (including any long-term interests that, in substance, form part of the net investment) is reduced to zero. Further losses are recognised only to the extent the investor has incurred legal or constructive obligations, or made payments, on behalf of the associate or joint venture.
5. Upstream and Downstream Transactions
Unrealised profits and losses on transactions between an investor and its associate or joint venture are eliminated to the extent of the investor's interest in the investee:
| Transaction type | Direction | Elimination |
|---|---|---|
| Downstream | Investor sells to the associate/JV | Investor's share of the unrealised profit is eliminated against the carrying amount of the investment |
| Upstream | Associate/JV sells to the investor | Investor's share of the unrealised profit is eliminated, typically against the asset acquired (e.g. inventory) and the investment |
6. Impairment of the Investment
After applying the equity method, the entity assesses whether there is any objective evidence that the investment may be impaired. Since goodwill embedded within the carrying amount of an equity-method investment isn't separately recognised, it isn't tested for impairment on its own under IND AS 36 — instead, the entire carrying amount of the investment is tested as a single asset, comparing its recoverable amount (higher of value in use and fair value less costs of disposal) to its carrying amount.
7. Discontinuing the Equity Method
An investor discontinues the equity method from the date it ceases to have significant influence (or joint control). From that date, any retained interest is measured at fair value, treated as the fair value on initial recognition of a financial asset under IND AS 109 — with the difference between that fair value and the previous equity-method carrying amount recognised in profit or loss.
8. Worked Example — Applying the Equity Method
Scenario: Ashoka Enterprises Ltd acquires 30% of Comet Components Ltd for ₹90,00,000 on 1 April, obtaining significant influence (a board seat, no control). During the year, Comet reports profit of ₹40,00,000 and OCI of ₹5,00,000 (FVOCI investment gains), and pays a total dividend of ₹10,00,000.
| Item | Ashoka's 30% share (₹) |
|---|---|
| Initial cost | 90,00,000 |
| Add: Share of profit (30% × 40,00,000) | 12,00,000 |
| Add: Share of OCI (30% × 5,00,000) | 1,50,000 |
| Less: Share of dividend received (30% × 10,00,000) | (3,00,000) |
| Closing carrying amount of investment | 1,00,50,000 |
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| Aspect | Old IGAAP (AS 23) | IND AS 28 |
|---|---|---|
| Scope of application | Equity method required only in consolidated financial statements | Equity method applied in both consolidated and, subject to conditions, separate financial statements |
| Joint ventures | Covered under a separate standard, generally using proportionate consolidation for jointly controlled entities | Joint ventures use the equity method exclusively, aligned with IND AS 111's classification (proportionate consolidation for JVs is no longer permitted) |
| OCI pick-up | Less explicit on picking up the investee's OCI | Explicit requirement to recognise the investor's share of the investee's OCI |
| Discontinuing the equity method | Less prescriptive | Explicit fair-value remeasurement of the retained interest, with the gain/loss through profit or loss |
| Impairment testing | Less structured | Explicit requirement to test the entire investment (not just goodwill within it) under IND AS 36 |
10. Disclosures Required
IND AS 28 requires disclosure of the nature and extent of any significant restrictions on the ability of associates or joint ventures to transfer funds to the investor, the investor's share of any contingent liabilities incurred jointly with other investors, and (referencing IND AS 112 for entities within its scope) summarised financial information about material associates and joint ventures, including their assets, liabilities, revenue and profit or loss, along with a reconciliation of that summarised information to the carrying amount of the investment.
11. Common Mistakes CAs Make
Error 1 — Recognising dividends received from an associate as income. Under the equity method, dividends reduce the investment's carrying amount — the investor's share of profit was already recognised when earned by the associate, not when distributed as a dividend.
Error 2 — Continuing to recognise a share of losses after the investment's carrying amount reaches zero. Once the carrying amount (plus any long-term interests forming part of the net investment) is exhausted, further losses are only recognised to the extent of legal/constructive obligations or payments made on the investee's behalf.
Error 3 — Forgetting to eliminate the investor's share of unrealised profit on transactions with the associate. Both downstream and upstream transactions require the investor's proportionate share of unrealised profit to be eliminated, not just consolidated-subsidiary intercompany transactions.
Error 4 — Applying proportionate consolidation to a joint venture. Under IND AS 28/111, joint ventures are accounted for using the equity method exclusively — proportionate consolidation is not an available option, unlike some older frameworks.
Error 5 — Testing only the goodwill component of an equity-method investment for impairment. Since goodwill isn't separately recognised within an equity-method investment, the entire carrying amount of the investment is tested as a single unit under IND AS 36, not a carved-out goodwill figure.
12. FAQs
What is significant influence under IND AS 28?
Significant influence is the power to participate in the financial and operating policy decisions of an investee, without having control or joint control over those policies. Holding 20% or more of the voting power of an investee is presumed to give significant influence, unless it can be clearly demonstrated otherwise; holding less than 20% is presumed not to give significant influence, unless such influence can be clearly demonstrated.
How does the equity method work?
Under the equity method, an investment in an associate or joint venture is initially recognised at cost. The carrying amount is then increased or decreased to recognise the investor's share of the profit or loss of the investee after the acquisition date, with the investor's share of the investee's profit or loss recognised in the investor's profit or loss, and the investor's share of the investee's other comprehensive income also recognised in the investor's OCI.
How are transactions between an investor and its associate eliminated?
Unrealised profits and losses on transactions between an investor and its associate or joint venture are eliminated to the extent of the investor's interest in the associate or joint venture. Downstream transactions (investor sells to the investee) and upstream transactions (investee sells to the investor) are both eliminated proportionately, whether the transaction involves inventory, a fixed asset, or another type of asset.
When does an investor stop using the equity method?
An investor discontinues the equity method from the date it ceases to have significant influence (or joint control) over the investee. From that date, the retained interest is measured at fair value, and that fair value is regarded as the fair value on initial recognition of a financial asset under IND AS 109, with the difference between the fair value and the previous carrying amount recognised in profit or loss.
Can an investor's share of an associate's losses exceed the investment's carrying amount?
No. If an investor's share of losses of an associate or joint venture equals or exceeds its interest in that investee, the investor discontinues recognising its share of further losses once the carrying amount is reduced to zero (including any long-term interests that, in substance, form part of the net investment). Further losses are recognised only to the extent the investor has incurred legal or constructive obligations, or made payments, on behalf of the investee.
Is IND AS 28 the same as IAS 28?
IND AS 28 is India's converged version of IAS 28 and follows the same significant influence test, equity method mechanics, and upstream/downstream elimination rules. It replaces the older Indian AS 23 (Accounting for Investments in Associates in Consolidated Financial Statements), which applied only in consolidated financial statements — IND AS 28 also covers joint ventures within the same equity-method framework, aligned with IND AS 111's classification of joint arrangements.