LOANS TO ASSOCIATES

摘要

Entity A owns 25% of entity B's equity share capital. A has significant influence over B; B is therefore an associate of A. A also owns 75% of B's 7% convertible preference share capital. Should A's ownership of B's preference shares be included as part of A's equity investment in associate in its consolidated financial statements?rnWhether the preference shares are included within A's equity investment in associate will depend on whether the preference shares are a financial liability or equity of B.rnUnder IAS 32, Financial Instruments: Presentation, an equity instrument is any contract that evidences a residual interest in an entity's assets after deducting all of its liabilities. Indicators of an equity instrument include an unconditional ability to avoid paying cash - that is, payment of interest and principal are at the discretion of management. If payment of cash can be avoided in all scenarios, B treats the preference shares, in their entirety, as equity; and A's interest in the preference shares is scoped within IAS 28, Investment in Associates. It should therefore be measured at cost and included within A's equity investment in associate.