ACCA Financial Reporting (F7) 2025 – 400 Free Practice Questions to Pass the Exam

Investments in associates are accounted for using the equity method according to IAS 28. This method reflects the investor's share of the associate's net assets and profits or losses. Under the equity method, the initial investment is recorded at cost, but it is adjusted for the investor's share of the associate's post-acquisition profits or losses and any other changes in equity. This approach provides a more accurate representation of the investor's interest in the associate, as it incorporates the financial performance and position of the associate into the investor's financial statements.

The equity method contrasts with other methods, such as accounting at fair value or cost. Fair value measurement may not reflect the underlying performance of the associate, while cost does not change over time regardless of the associate's performance. Additionally, treating the investment as a financial instrument would not align with the specific requirements set out in IAS 28 for investments in associates, which focus on significant influence and long-term relationships rather than short-term trading.