Investments in Associates and Joint Ventures
Shares held in companies where you have significant influence or joint control, on the Balance Sheet. Accounted using the equity method.
In detail
Investments in Associates and Joint Ventures records shares in companies where you hold significant influence, usually 20 to 50 percent, or joint control with a partner. These are not simple investments to be marked to market; under the equity method the balance starts at cost and then rises by your share of the associate's profit and falls by dividends received and your share of losses. The year-end adjustment needs the associate's audited accounts, so it is posted once a year by Journal Entry after the auditor works out the figure. A 30 percent stake in a hotel company is a typical case. Holdings under 20 percent belong under the Financial Assets groups instead.
Formula
Carrying value = Cost + Share of associate's profits - Share of losses - Dividends received.
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Investments in Associates and Joint Ventures | Rs 10,00,000 | |
| Bank Account (rename me) | Rs 10,00,000 |
How to record it in BRAccount
- 01Go to Invoicing > Journal Entry > New dated the share purchase; debit this account, credit the bank.
- 02Submit. The entry above posts for a 30 percent stake.
- 03At Ashadh end, take the associate's audited profit and compute your share with the auditor.
- 04Post a Journal Entry debiting this account and crediting a share-of-profit income account for that amount.
- 05When a dividend arrives, debit the bank and credit this account, not Interest Income.
When to use it
Post by Journal Entry when shares are bought or when your share of the associate's profit is recorded at year end.
Example from the demo books
Dr Investments in Associates and Joint Ventures Rs 10,00,000, Cr Bank Account Rs 10,00,000 for a 30 percent stake in a hotel company.