In business dynamics, strategic alliances between entities are common in these cases, the accountant must analyze if section 14 of the IFRS for SMEs is applicable, in this regard.Firstly we have to know that an associate is an entity, even without a defined legal form such as an associative formula for business purposes, over which the investor has significant influence, and which is not a subsidiary or an interest in a joint venture.
Secondly, we must know that significant influence is based on being able to participate in the decisions of financial and operating policy of the associate, without having control or joint control over such policies, normally if the investor has 20 percent or more. of the voting power in the associate, it is assumed that it has significant influence, and if not, it must demonstrate it.
Regarding the investment measurement, we have options, these are
- The cost model The equity method The fair value model
It should be noted that the option must be chosen as an accounting policy, this investment must be classified as a non-current asset, with regard to the information to be disclosed, there is the choice of the respective accounting policy for these investments, their book value and its fair value, the participation separately, the participation in the results of those associates and discontinued operations, all this if they use the participation method, if it uses the cost method it will reveal the amount of dividends and other income.
The entities that choose the fair value method will have a greater number of disclosures described in section 11 basic financial instruments, in the subtitle of Statement of financial position - categories of financial assets and financial liabilities, these are:
- financial assets measured at fair value through profit or loss financial assets that are debt instruments measured at amortized cost financial assets that are equity instruments measured at cost less impairment financial liabilities measured at fair value through profit or loss financial liabilities measured at amortized cost financial liabilities measured at amortized cost loan measured at cost less impairment
Likewise, the information that allows users of financial statements to evaluate the significance of financial instruments in their financial position and performance is important, as well as to report on the basis used to determine fair value, however if A reliable measure of fair value is no longer available, or is not available without undue cost or effort, the entity shall disclose that fact by explaining the reasons.
This is a section that sooner or later as a presenter of financial statements you will have to apply, due to the dynamism of the market today, I hope this informative material will serve you for your performance.
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Author: Lcdo. Michael Aular - Micdan Consulting
Twitter: @Micdanconsultin
