Public Finance Management Act, 1999 (Act No. 1 of 1999) Notices Standards of Generally Accepted Municipal Accounting Practice (GAMAP) in terms of Section 91 GAMAP 7 : Accounting for Investments in Associates

 

Introduction

 

Standards of Generally Accepted Municipal Accounting Practice (GAMAP)

 

The Accounting Standards Board (Board) is required in terms of the Public Finance Management Act, Act No. 1 of 1999, as amended (PFMA), to determine generally recognised accounting practice referred to as Standards of Generally Recognised Accounting Practice (GRAP).

 

The Board must determine GRAP for:

 

The above are collectively referred to as ‘entities" Standards of GRAP.

 

The Board considers that the Standards of GAMAP constitute GRAP for municipalities.

 

GAMAP is an interim solution until such time as it is replaced by a Standard of GRAP.

 

Any limitation of the applicability of specific Standards is made clear in those Standards.

 

The Standard of GAMAP on Accounting for lnvestments in Associates is set out in paragraphs .01 - .34. All paragraphs in this Standard have equal authority. The authority of appendices is dealt with in the preamble to each appendix. This Standard should be read in the context of its objective, the Preface to Standards of GRAP, the Preface to Standards of GAMAP and the Framework for the Preparation and Presentation of Financial Statements.

 

Reference may be made here to a Standards of GRAP that has not been issued at the time of issue of this Standard. This is done to avoid having to change the Standards already issued when a later Standard is subsequently issued. Paragraph .12 of the Standard of GRAP on Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

 

Scope

 

 

 

 

Definitions

 

.01        The following terms are used in this Standard with the meanings specified:

 

Accounting policies are the specific principles, bases, conventions, rules and practices adopted by an entity in preparing and presenting financial statements.

 

Accrual basis means a basis of accounting under which transactions and other events are recognised when they occur (and not only when cash or its equivalent is received or paid). Therefore the transactions and events are recorded in the accounting records and recognised in the financial statements of the periods to which they relate. The elements recognized under accrual accounting are assets, liabilities, net assets, revenue and expenses.

 

Assets are resources controlled by an entity as a result of past events and from which future economic benefits or service potential are expected to flow to the entity.

 

Associate is an entity in which the investor has significant influence and which is neither a controlled entity nor a joint venture of the investor.

 

Consolidated financial statements are the financial statements of an economic entity presented as those of a single entity.

 

Contributions from owners is future economic benefits or service potential that have been contributed to the entity by parties external to the entity that establish a financial interest in the net assets of the entity, provided that the contributions:

 

Control is the power to govern the financial and operating policies of another entity so as to benefit from its activities.

 

Controlled entity is an entity that is subject to the control of another entity (known as the controlling entity.).

 

Controlling entity is an entity that has one or more controlled entities.

 

Cost method is a method of accounting whereby the investment is recorded at cost. The statement of financial performance reflects revenue from the investment only to the extent that the investor receives distributions from accumulated surpluses of the investee arising subsequent to the date of acquisition.

 

Distributions to owners is future economic benefits or service potential distributed by the entity to all or some of its owners, either as a return on investment or as a return of investment.

 

Economic entity means a group of entities comprising a controlling entity and one or more controlled entities.

 

Equity method is a method of accounting whereby the investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the investor's share of net assets of the investee. The statement of financial performance reflects the investor's share of the results of operations of the investee.

 

Expenses are decreases in economic benefits or service potential during the reporting period in the form of outflows or consumption of assets or incurrences of liabilities that result in decreases in net assets, other than those relating to distributions to owners.

 

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

 

Investor in a joint venture is a party to a joint venture and does not have joint control over that joint venture.

 

Joint venture is a binding arrangement whereby two or more parties are committed to undertake an activity which is subject to joint control.

 

Liabilities are present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits or service potential.

 

Net assets are the residual interest in the assets of the entity after deducting all its liabilities.

 

Surplus or deficit comprises the following components:

 

Reporting date means the date of the last day of the reporting period for which the financial statements relate.

 

Revenue is the gross inflow of economic benefits or service potential during the reporting period when those inflows result in an increase in net assets other than increases relating to contributions from owners.

 

Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control over those policies.

 

Cost method

 

 

Equity method

 

 

Significant influence

 

 

 

 

Consolidated financial statements

 

 

 

 

 

The carrying amount of the investment at that date should be regarded as cost thereafter.

 

 

Separate financial statements of the investor

 

 

 

 

 

 

 

Application of the equity method

 

 

 

 

 

 

 

 

 

Impairment losses

 

 

Contingencies

 

 

Disclosure

 

 

 

 

Effective date