Associates and Joint Ventures: Share of Profit or Loss and IFRS 11 Joint Arrangements

The previous topic valued the investment in an associate in the statement of financial position. The same investment has to appear in the statement of profit or loss and other comprehensive income. The equity method does that by showing one line: the investor’s share of the associate’s results.

This topic covers that line and its companion in other comprehensive income, how unrealised profit and impairment affect it, the treatment of an associate’s losses, and an introduction to joint arrangements under International Financial Reporting Standard (IFRS) 11, where the key distinction is between a joint operation, whose assets and liabilities the parties share directly, and a joint venture, which is equity accounted like an associate.

The next topic covers the consolidated statement of cash flows of a simple group.

The study material treats the joint arrangements standard as an introduction to the equity method and not as a separate area for detailed calculation, so the aim here is to recognise the two types and the accounting for each. No question in the diets reviewed tests it directly. Read the equity method in the financial position first.

The share of profit and other comprehensive income

In the statement of profit or loss and other comprehensive income there are separate lines for the share of profit (or loss) of the associate, in the profit or loss section, and the share of other comprehensive income of the associate, in the other comprehensive income section.

The share of profit is the investor’s percentage of the associate’s profit after tax, so no further tax is charged on it in the investor’s own tax line. It is normally shown after finance costs and before profit before tax (under International Financial Reporting Standard (IFRS) 18, from 2027, it is in the investing category).

For example, P holds 30% of A. A’s profit after tax is ₦80,000, so the share of profit of the associate is 30% × ₦80,000 = ₦24,000. A’s other comprehensive income is a revaluation gain of ₦20,000, so P’s other comprehensive income includes ₦6,000.

A’s revenue, cost of sales and expenses do not appear in the group’s lines. A’s assets and liabilities do not appear in the group’s statement of financial position. In the group statement of cash flows the associate’s cash flows are not included, only the dividends received from it.

Adjustments to the share of results

• Unrealised profit. If the investor sold goods to the associate, the investor’s share of the unrealised profit is added to cost of sales (and reduces the investment). If the associate sold to the investor, the investor’s share reduces the share of profit of the associate, and the investor’s inventory.
• Fair value adjustments. If the associate’s assets were at fair value above carrying amounts when acquired, the extra depreciation reduces the associate’s profit for the purpose of the share.
• Impairment. An impairment loss on the investment in the associate is recognised in profit or loss, as part of the share of results or on its own line.
• Losses. The investor recognises its share of an associate’s losses until the investment (and any other long-term interests that are in substance part of the investment) is reduced to nil. Further losses are not recognised unless the investor has legal or constructive obligations or has made payments on the associate’s behalf.

For example, a group’s profit before tax before the associate is ₦400. Its share of A’s profit is ₦24. P sold goods to A with unrealised profit of ₦4 (P’s share), and the investment is impaired by ₦5. Profit before tax is ₦400 − ₦4 + ₦24 − ₦5 = ₦415. If the group’s tax is ₦100, profit is ₦315. If a subsidiary has a 20% non-controlling interest in profit of ₦40, the NCI is ₦8 and the owners receive ₦307.

Other comprehensive income of ₦10 for the group plus ₦6 as a share of the associate’s gives ₦16, so total comprehensive income is ₦331.

Joint arrangements: IFRS 11

A joint arrangement is an arrangement of which two or more parties have joint control, the contractually agreed sharing of control, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. There are two types, decided by the rights and obligations of the parties, not by the legal form alone:

• A joint operation: the parties have rights to the assets and obligations for the liabilities of the arrangement. Each joint operator recognises its own assets, liabilities, revenue and expenses, including its share of any jointly held or incurred. Typically no separate legal vehicle, or a vehicle that does not separate the parties from the assets.
• A joint venture: the parties have rights to the net assets of the arrangement, usually through a separate entity. Each joint venturer recognises its interest as an investment and uses the equity method under International Accounting Standard (IAS) 28, exactly as for an associate.

To classify, consider the structure (separate vehicle or not), the legal form of the vehicle, the terms of the contractual arrangement, and other facts and circumstances, such as whether the parties are substantially the only source of cash flows to it.

For example, P has a 40% share in a pipeline jointly operated with another party, with no separate entity. The arrangement’s assets are ₦500 million, liabilities ₦150 million, revenue ₦260 million and expenses ₦180 million. As a joint operation, P recognises assets of 40% × ₦500m = ₦200m, liabilities of ₦60m, revenue of ₦104m and expenses of ₦72m, line by line.

If the same arrangement were a joint venture held through a separate company, P would show an investment, and a share of profit of 40% × (₦260m − ₦180m) = ₦32m, on one line.

The ideas in more depth

Why a joint operation is shown line by line

In a joint operation each party has rights to the assets and obligations for the liabilities themselves, so its own statements should show them, as if it owned and owed that part directly. In a joint venture the party owns only a claim on what is left, which is the net assets, and one line captures that.

Why losses stop at nil

An investor’s loss on an equity investment is limited to what it has put in, unless it has agreed to fund more. Showing an investment below nil would imply an obligation that does not exist.

Sources and references

• International Accounting Standard (IAS) 28 Investments in Associates and Joint Ventures: the equity method and presentation; IFRS 11 Joint Arrangements: joint control, joint operations and joint ventures.

These points are stated as at 5 November 2026.

Worked examples

1. Profit.
   30% × ₦80,000 = ₦24,000 share of profit of associate.
2. Other comprehensive income.
   30% × ₦20,000 = ₦6,000.

1. Share of unrealised profit.
   30% × ₦12,000 = ₦3,600.
2. Share of profit.
   ₦24,000 − ₦3,600 = ₦20,400; P’s inventory is reduced by ₦3,600.

1. Assets and liabilities. ₦200m and ₦60m.
2. Revenue and expenses. ₦104m and ₦72m, profit ₦32m.

How to answer in the exam

• Show the associate on one line in profit and one in other comprehensive income, after tax.
• Adjust for unrealised profit, extra depreciation and impairment, naming the line each affects.
• For joint arrangements, test for joint control, then rights to assets and liabilities against rights to net assets.
• State the accounting for each type.

Common mistakes in the exam

• Adding the associate’s revenue and expenses line by line.
• Charging tax again on the share of profit of an associate.
• Putting the unrealised profit adjustment in the wrong line, depending on who sold.
• Recognising losses beyond the carrying amount of the investment.
• Classifying a joint arrangement by its legal form alone.
• Using the equity method for a joint operation.

Quick revision

• Associate: share of profit after tax in profit or loss; share of other comprehensive income in other comprehensive income.
• Unrealised profit: investor sold, cost of sales; associate sold, share of profit.
• Joint control: unanimous consent. Joint operation: own share of assets, liabilities, revenue, expenses. Joint venture: equity method.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

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