Between owning a share and owning a whole company lies a lot of ground. A company may hold 30% of another, sit on its board and share in its decisions without being able to run it alone. Or two companies may start a business together and have to agree every big decision. In neither case is the other business a subsidiary, so it is not consolidated line by line.
A different method is used: the investor shows its share of the other company’s results as one line.
This topic covers joint control and joint arrangements under International Financial Reporting Standard (IFRS) 11, the difference between a joint operation and a joint venture, and associates and the equity method under International Accounting Standard (IAS) 28, including unrealised profit on trading with them. The previous topics covered control, consolidation and the group income statement. The next topic covers acquisitions achieved in stages. May 2026 Question 1(a) started with a 30% associate that became a subsidiary.
In 30 seconds
A joint arrangement is bound by a contract that gives two or more parties joint control (unanimous consent on the relevant decisions). If the parties have rights to the assets and obligations for the liabilities, it is a joint operation and each party recognises its share of the assets, liabilities, revenue and expenses.
If the parties have rights to the net assets, it is a joint venture and the equity method applies. An associate is an entity in which the investor has significant influence, presumed from 20% of the votes. It also uses the equity method: cost, plus the investor’s share of post-acquisition profit and other comprehensive income, less impairment.
Profit or loss shows one line for the share of the associate’s profit. Balances with an associate are not cancelled. Only the investor’s share of unrealised profit on trading with an associate is removed.
Key terms in plain English
| Term | What it means |
|---|---|
| Joint arrangement | An arrangement in which two or more parties have joint control |
| Joint control | Contractually agreed sharing of control, where decisions on the relevant activities need the unanimous consent of the parties sharing control |
| Joint operation | A joint arrangement in which the parties have rights to the assets and obligations for the liabilities |
| Joint venture | A joint arrangement in which the parties have rights to the net assets |
| Separate vehicle | A separately identifiable financial structure, such as a legal entity |
| Associate | An entity over which the investor has significant influence |
| Significant influence | The power to take part in financial and operating policy decisions without control or joint control |
| Equity method | Recording the investment at cost and adjusting it for the investor’s share of the investee’s post-acquisition changes |
Syllabus check
IFRS 11 and IAS 28 are examinable under syllabus area C. This topic covers:
- the difference between a joint operation, a joint venture and an associate;
- accounting for a joint operation, and the equity method including unrealised profit.
CAMA 2020 and equity-accounted investments
The Companies and Allied Matters Act 2020 (CAMA 2020) requires statements that follow IFRS and give a true and fair view.
| Section | What it says | Link to this topic |
|---|---|---|
| s. 377(1) and s. 378 | Directors prepare statements that follow IFRS and give a true and fair view | Associates and joint ventures follow IAS 28 and IFRS 11 |
| ss. 379 to 381 | The provisions on group accounts, as ICAN teaches them | Associates appear in the group statements |
| s. 374(1) | The company keeps accounting records | Joint arrangement contracts and share-of-profit records are kept |
| s. 385 | The directors’ report covers performance and risk | Significant investments and joint arrangements are discussed |
| s. 404(7) | The audit committee reviews policies and internal control | It can review the classification of an interest |
Which standard applies
| Holding | Treatment |
|---|---|
| Control | Subsidiary: consolidate (IFRS 10) |
| Joint control | Joint operation or joint venture (IFRS 11) |
| Significant influence (usually 20% to 50%) | Associate: equity method (IAS 28) |
| No influence (usually under 20%) | Financial asset under IFRS 9, with dividends in profit or loss |
Joint arrangements and joint control
A joint arrangement has two features: the parties are bound by a contract (usually written, setting the purpose, the decision-making process, the contributions and how assets, liabilities, revenue and expenses are shared), and the contract gives two or more parties joint control. Joint control exists only when decisions about the relevant activities need the unanimous consent of the parties that collectively control the arrangement.
It is not necessary for every party to agree. A manager can run the day-to-day business if it carries out policy decided unanimously.
Joint control in practice
Three entities A, B and C have interests of 50%, 30% and 20%.
- If decisions need the unanimous consent of all three, all three have joint control.
- If decisions need at least 75% of the votes, A (50%) and B (30%) must both agree, because 50% is not enough alone and 50% + 20% is only 70%. A and B have joint control. C is a party to the arrangement without joint control.
- If the shares are 50%, 25% and 25% and 75% is needed, A with B or A with C would be enough. No one party or fixed group has joint control, so it is not a joint arrangement unless the contract says which combination is needed. IFRS 11 does not apply.
Joint operation or joint venture
The classification depends on the parties’ rights and obligations. If the arrangement is not set up through a separate vehicle, it is a joint operation.
If it is set up through a separate vehicle, it may be either: it is a joint venture only if the vehicle itself has the rights to the assets and the obligations for the liabilities, so that the investors have a claim on its net assets. If an investor has direct rights to specific assets and direct obligations for specific liabilities of the vehicle, it is a joint operation.
Joint operations
A joint operator recognises, in its own statements: its assets (including its share of jointly held assets), its liabilities (including its share of joint liabilities), its revenue from selling its share of the output, its share of the revenue from the output sold by the operation, and its expenses (including its share of joint expenses).
A party that takes part without joint control but has rights to assets and obligations for liabilities does the same. If the operation is a business, the principles of IFRS 3 apply to acquiring an interest in it (fair values, costs expensed, goodwill and impairment).
Joint ventures
A joint venturer recognises an investment and uses the equity method under IAS 28 (unless an exemption applies). A party without joint control accounts for the interest under IFRS 9, unless it has significant influence, when IAS 28 applies.
Associates and the equity method
IAS 28 presumes significant influence at 20% or more of the votes and no significant influence below 20%. The presumption can be overturned by the facts. Evidence of influence includes representation on the board, participation in policy decisions (including dividends), material transactions between the two, an interchange of management, and the supply of essential technical information.
Under the equity method:
- The investment starts at cost. Goodwill on acquisition is included in that carrying amount and is not shown or tested separately. (The whole investment is tested for impairment.)
- Each year it is increased by the investor’s share of the investee’s profit and other comprehensive income and reduced by impairment and by dividends received.
- The investor’s profit or loss shows one line: share of profit of the associate. Other comprehensive income shows one line for its share of the associate’s other comprehensive income.
- Group retained earnings include the share of the associate’s post-acquisition retained profits, less impairment. Other group reserves include the share of the post-acquisition movement in the associate’s reserves.
Trading with an associate or joint venture
- Balances owed between the group and an associate are not cancelled. The associate is not a member of the group, so these are amounts owed to or by an outsider.
- Unrealised profit on sales between the investor (or a group member) and the associate is eliminated only to the investor’s share. IAS 28 does not give the double entry. In practice:
| Sale | Entry |
|---|---|
| Parent sells to associate (downstream) | Dr cost of sales (or profit), Cr investment in associate, for the parent’s share of the unrealised profit in the associate’s inventory |
| Associate sells to parent (upstream) | Dr share of profit of the associate, Cr inventory, for the parent’s share of the unrealised profit in the parent’s inventory |
The rules in more depth
Why no line-by-line consolidation
The investor cannot direct the assets and liabilities of an associate. It owns an interest in the results. Adding 100% of the associate’s assets would overstate what the investor controls.
Why balances are not cancelled
The associate is outside the group. The amounts really are owed to or by someone else.
Why only the share of unrealised profit is removed
The investor owns only part of the associate. The rest of the profit has been earned in a sale to outside owners.
Effect on analysis
The share of profit of an associate is not cash. Analysts compare it with dividends received, and look at the associate’s own debts, which are not in group debt.
Worked examples
Example 1: the equity method. P bought 30% of A in Year 1 for ₦147,000 when A’s net assets had a fair value of ₦350,000. At 31 December Year 5, A’s net assets are ₦600,000 and its profit for the year was ₦80,000.
- Post-acquisition increase in net assets.
₦600,000 − ₦350,000 = ₦250,000.
P’s share (30%) = ₦75,000. - Investment = ₦147,000 + ₦75,000 = ₦222,000.
- Profit or loss.
share of profit of associate = 30% × ₦80,000 = ₦24,000. - The ₦75,000 is credited to group retained earnings (Dr investment, Cr retained earnings).
- The cost of ₦147,000 includes ₦42,000 of goodwill (₦147,000 less 30% of ₦350,000). It is part of the investment and not shown separately.
Example 2: impairment. P bought 40% of A in Year 1 for ₦128,000 when A’s net assets were ₦250,000. The investment has since been impaired by ₦8,000. At 31 December Year 5, A’s net assets are ₦400,000 and its profit for the year was ₦50,000.
- Post-acquisition increase.
₦400,000 − ₦250,000 = ₦150,000.
P’s share (40%) = ₦60,000. - Investment = ₦128,000 + ₦60,000 − ₦8,000 = ₦180,000.
- Share of profit of associate for the year.
40% × ₦50,000 = ₦20,000.
Example 3: unrealised profit, downstream. P owns 40% of A. The investment cost ₦205,000. A has made ₦275,000 of profit since acquisition. In the year, P sold goods to A for ₦200,000 at a mark-up of 100% on cost. A still holds goods that it bought for ₦30,000.
- Profit in the goods held.
₦30,000 × 100/200 = ₦15,000.
P’s share (40%) = ₦6,000. - Dr cost of sales (and so retained earnings) ₦6,000; Cr investment in associate ₦6,000.
- Investment = ₦205,000 + (40% × ₦275,000 = ₦110,000) − ₦6,000 = ₦309,000.
Example 4: a second unrealised profit case. P owns 30% of A. The investment cost ₦275,000. A’s post-acquisition profit is ₦380,000 and its profit for the year was ₦100,000. P sold goods to A for ₦180,000 at a mark-up of 20% on cost. A still holds goods that it bought for ₦60,000.
- Profit in the goods held.
₦60,000 × 20/120 = ₦10,000.
P’s share (30%) = ₦3,000. - Dr cost of sales ₦3,000; Cr investment ₦3,000.
- Investment = ₦275,000 + (30% × ₦380,000 = ₦114,000) − ₦3,000 = ₦386,000.
- Share of profit of associate.
30% × ₦100,000 = ₦30,000.
The ₦3,000 is charged in cost of sales.
(Some entities show the share of profit net, ₦27,000.
The total effect on profit is the same.)
Example 5: a joint operation. On 1 January 20X7, X and Y bought an oil pipeline for ₦20m, financed by a joint loan of ₦20m, and share costs and income as follows. Y does all the maintenance, shared 40% X and 60% Y. Third-party income is shared 50:50 and is invoiced by Y. X pays all the loan interest, shared equally.
For the year, maintenance cost ₦1,200,000, third-party income was ₦900,000 (paid to Y) and interest paid by X was ₦1,500,000.
- Each party recognises 50% of the pipeline (₦10m) and 50% of the loan (₦10m).
- X:
income 50% × 900,000 = 450,000.
Expenses: maintenance 40% × 1,200,000 = 480,000 and interest 750,000, total 1,230,000. - Y: income 450,000.
Expenses: maintenance 60% × 1,200,000 = 720,000 and interest 750,000, total 1,470,000. - Cash: X paid 1,500,000 of interest and owes Y 480,000 for maintenance. Y collected 900,000 and paid maintenance of 1,200,000. After X’s share of the income (450,000) and the interest (750,000), Y owes X ₦720,000 (750,000 + 450,000 − 480,000).
Note: ICAN’s text for this example names the sharing parties “B and C” in the maintenance clause instead of X and Y. We have used X and Y throughout. The figures agree.
Example 6: classification. Two parties set up a company to run a mine. The company owns the mine and has its own debts. The parties get a share of its profit and their claim is on its net assets. A second pair of parties share a pipeline directly, each owning a share of the pipeline and each responsible for part of its loan.
- The first arrangement is a joint venture. The separate vehicle has the rights and obligations. Use the equity method.
- The second is a joint operation. The parties have direct rights to assets and obligations for liabilities. Recognise shares of assets, liabilities, revenue and expenses.
How to score full marks
- Start with the level of influence: control, joint control, significant influence or none.
- For a joint arrangement, test the contract, the vehicle and the rights, then classify it.
- Set out the equity method as cost + share of post-acquisition change − impairment − unrealised profit.
- Show the profit or loss line and the retained earnings effect.
- Remove only the investor’s share of unrealised profit, and give the double entry.
- Do not cancel balances with an associate.
Common mistakes in the exam
- Consolidating an associate line by line.
- Showing goodwill on an associate as a separate asset.
- Removing 100% of the unrealised profit on a trade with an associate.
- Cancelling balances with an associate.
- Classifying a joint arrangement by its legal form only.
- Calling a 25% holding a joint arrangement without joint control.
- Forgetting to deduct dividends received from the investment.
Quick revision
- Joint control means unanimous consent of the controlling parties. Joint operation: rights to assets. Joint venture: rights to net assets.
- Associate: significant influence, 20% presumed. Equity method.
- Investment = cost + share of post-acquisition profit and other comprehensive income − impairment − dividends − unrealised profit share.
- One line in profit or loss. Balances are not cancelled.
- CAMA 2020: ss. 377(1), 378, 379 to 381, 374(1), 385, 404(7).
Practice questions
These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.
Recall check: multiple choice
The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.
Question 1. Significant influence is presumed at a holding of:
- 10%
- 20% or more
- 50% or more
- 75%
Show the answer
B. The presumption can be overturned by the facts.
Question 2. An associate is accounted for using:
- Line-by-line consolidation
- The equity method
- Cost only
- Fair value only
Show the answer
B. Under IAS 28.
Question 3. A joint arrangement not structured through a separate vehicle is:
- A joint venture
- A joint operation
- An associate
- A subsidiary
Show the answer
B. Joint ventures need a separate vehicle.
Question 4. A joint venture is accounted for by the:
- Proportionate method
- Equity method
- Cost method
- Fair value method only
Show the answer
B. Unless an exemption applies.
Question 5. Balances between the group and an associate are:
- Cancelled
- Not cancelled
- Written off
- Added to goodwill
Show the answer
B. The associate is outside the group.
Question 6. On a sale to an associate, the investor eliminates:
- 100% of unrealised profit
- Its share of unrealised profit
- No profit
- The non-controlling interest’s share
Show the answer
B. Only its percentage.
Question 7. The profit or loss shows an associate as:
- Line-by-line items
- One line: share of profit
- Revenue
- Dividends only
Show the answer
B. Other comprehensive income shows one line too.
Question 8. Joint control requires:
- A majority vote
- Unanimous consent of the controlling parties
- A board seat
- 50% ownership
Show the answer
B. Not every party to the arrangement must agree.
Question 9. Dividends received from an associate:
- Are income in group profit
- Reduce the carrying amount of the investment
- Increase goodwill
- Are ignored
Show the answer
B. The share of profit is already recognised.
Question 10. Which section of CAMA 2020 requires the statements to follow IFRS?
- Section 378
- Section 400
- Section 405
- Section 409
Show the answer
A. IAS 28 and IFRS 11 are part of IFRS.
Written questions
Question 11 (10 marks). (a) Distinguish a joint operation from a joint venture. (5 marks) (b) Explain how significant influence is assessed under IAS 28. (5 marks)
Question 12 (20 marks). P acquired 30% of A in Year 1 for ₦600,000 when A’s net assets were ₦2,000,000. At 31 December Year 5, A’s net assets are ₦3,000,000 and its profit for the year was ₦400,000. The investment has been impaired by ₦50,000. P sold goods to A in the year for ₦480,000 at a mark-up of 20% on cost. A still holds goods that it bought for ₦240,000. (a) Calculate the investment in the associate at 31 December Year 5.
(8 marks) (b) Show the share of profit of the associate and the effect of the unrealised profit. (6 marks) (c) Explain why balances with an associate are not cancelled and why only part of the unrealised profit is removed. (6 marks)
Question 13 (10 marks). A, B and C hold 50%, 30% and 20% of an arrangement. Decisions need 75% of the votes. (a) Decide which parties have joint control. (4 marks) (b) State how A should account for its interest if it is a joint venture and if it is a joint operation. (4 marks) (c) State how C accounts for its interest. (2 marks)
Model answers
Show the model answer to Question 11
(a) Distinction (5 marks). In a joint operation the parties with joint control have rights to the assets and obligations for the liabilities. (1.5) In a joint venture they have rights to the net assets. (1.5) A joint arrangement without a separate vehicle is a joint operation. One with a separate vehicle is a joint venture only if the vehicle holds the rights and obligations. (2)
(b) Significant influence (5 marks). It is the power to take part in financial and operating policy decisions without control or joint control. (1.5) It is presumed at 20% or more of the votes and not below 20%, but the presumption can be rebutted. (1.5) Evidence includes board representation, participation in policy decisions including dividends, material transactions, an interchange of management and essential technical information. (2)
Show the model answer to Question 12
(a) Investment (8 marks).
- Post-acquisition increase in net assets.
3,000,000 − 2,000,000 = ₦1,000,000. - P’s share (30%) = ₦300,000. (3)
- Unrealised profit.
240,000 × 20/120 = ₦40,000. - P’s share (30%) = ₦12,000. (2)
- Investment = 600,000 + 300,000 − 50,000 − 12,000 = ₦838,000. (3)
(b) Profit or loss (6 marks).
- Share of profit of associate.
30% × 400,000 = ₦120,000. (2) - The unrealised profit of ₦12,000 is charged to cost of sales (Dr cost of sales, Cr investment). (2)
- The net effect on group profit before the impairment is ₦108,000. (2)
(c) Explanation (6 marks). An associate is not a member of the group, so amounts owed to or by it are owed to or by an outsider and stay in the statements. (3) Only the investor’s share of the unrealised profit is removed, because the rest of the profit has been earned in a sale to the outside owners of the associate. (3)
Show the model answer to Question 13
(a) Joint control (4 marks). A (50%) and B (30%) together have 80% and must both agree, because A and C have only 70% and B and C only 50%. (2) So A and B have joint control. C has no joint control. (2)
(b) A’s accounting (4 marks). If it is a joint venture, A uses the equity method under IAS 28. (2) If it is a joint operation, A recognises its assets, liabilities, revenue and expenses, including its shares of those held or incurred jointly. (2)
(c) C (2 marks). C is a party without joint control. If it has rights to assets and obligations for liabilities it accounts as a joint operator. Otherwise it applies IFRS 9, or IAS 28 if it has significant influence. (2)
Pathfinder on Associates and joint ventures
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
The solution carries the 30% at cost plus the share of profit (₦5.7bn) and then remeasures it to fair value on gaining control, with a gain of ₦0.8bn. Worked examples 1 to 4 show how the carrying amount is built up. The next topic covers the step acquisition.
Revise first: Worked examples
Questions on associates ask for the investment balance and the profit line. See the section on associates and the equity method.
Revise first: Associates and the equity method
Source: ICAN Pathfinder, Strategic Business Reporting. Diets covered: May Diet, 2026 (a previously held associate in Question 1(a)).
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