Full explanation
Overview
Meridian buys thirty percent of a company. Not control. Not a joint decision with anyone else. Just enough to get a seat at the table — and IFRS has an entirely different rulebook for that.
IAS twenty-eight, IFRS eleven and IFRS twelve are the companion standards to last video's business combinations. Below control, there's significant influence and joint control — and a completely different accounting model for each.
Who does what
IAS twenty-eight covers significant influence — the equity method. IFRS eleven covers joint control — joint operations versus joint ventures. IFRS twelve is the disclosure package that sits over all of it, subsidiaries included.
A seat at the table, not the wheel
Significant influence is the power to participate in financial and operating policy decisions — without control, and without joint control. Twenty percent or more of the voting power creates a REBUTTABLE PRESUMPTION of significant influence. Under twenty percent, the presumption runs the other way. Both presumptions can be overturned by evidence.
Five signs, either direction
The evidence that matters regardless of the percentage: board representation, participation in policy-making, material transactions between the two companies, interchange of managerial personnel, and the provision of essential technical information. Any one of these can establish significant influence even at nineteen percent — or defeat it even at twenty-five.
Significant influence vs joint control
Joint control is a different test entirely, and it doesn't sit on the same percentage scale at all. It exists only where decisions about the relevant activities require the UNANIMOUS consent of the parties sharing control — a fifty-fifty split, a sixty-forty split with a contractual veto right, both qualify. Ownership percentage barely matters here. The contract does.
Significant influence uses one specific accounting model. Let's run Meridian's numbers through it.
The equity method starts at cost
Meridian buys thirty percent of Associate Co for six hundred thousand euros and secures a board seat, confirming significant influence. Under the equity method, the investment starts at cost, six hundred thousand euros — not fair value, and never consolidated line by line.
Add the profit, less the dividend
In year one, Associate Co earns two hundred thousand euros. Meridian's thirty percent share, sixty thousand euros, is added to the carrying amount. Associate Co then pays a thirty-thousand-euro dividend; Meridian's share, nine thousand euros, REDUCES the carrying amount — a dividend is a return of the investment, not income, once you're using this method. Six hundred thousand, plus sixty thousand, less nine thousand: six hundred and fifty-one thousand euros.
Losses stop at zero — usually
One more rule worth knowing: if an associate's losses ever reduce the carrying amount to zero, Meridian stops recognising further losses — UNLESS it has a legal or constructive obligation to fund the associate, or has already made payments on its behalf. Losses below zero require a genuine reason, not just bad luck.
Never tested on its own
One more thing hiding inside that six hundred and fifty-one thousand euro carrying amount: if Meridian paid more for its stake than its share of Associate Co's identifiable net assets, that premium is goodwill — but under IAS twenty-eight, it's never tested separately. The WHOLE investment is tested for impairment as one single asset, under IAS thirty-six's recoverable amount test, whenever there's evidence something's wrong. No allocation, no separate goodwill line, ever.
Joint control splits into two completely different accounting outcomes, depending on what the parties actually have rights to.
Your own share, directly
A joint OPERATION gives the parties direct rights to the arrangement's assets, and direct obligations for its liabilities. Meridian recognises its own forty percent share of every asset, liability, revenue and expense line, directly — no equity method at all.
Net assets only, equity method
A joint VENTURE gives the parties rights only to the arrangement's net assets, through a separate vehicle. Here, Meridian uses the equity method — exactly the same mechanics as the associate. Structure through a separate vehicle is the first clue, but the legal form and the actual contract terms decide it, not the label on the paperwork.
Gross exposure, abolished
Before IFRS eleven, IAS thirty-one gave joint ventures a second choice: proportionate consolidation, folding your own share of the joint venture's assets and liabilities line by line into your own balance sheet. On a joint venture with four million euros of assets and two million four hundred thousand euros of liabilities, a fifty percent stake meant grossing up your own balance sheet by two million euros of assets and one million two hundred thousand of liabilities. IFRS eleven abolished that choice. Today, the SAME fifty percent stake shows as one single line, eight hundred thousand euros, investment in joint venture — identical net effect, completely different picture of gross exposure.
The judgement, then the numbers
IFRS twelve's disclosure package covers everything above it: the significant judgements and assumptions behind every control, joint control and significant influence conclusion. For each MATERIAL joint venture and associate, summarised financial information — assets, liabilities, revenue, profit or loss, other comprehensive income, and dividends received. Immaterial interests can be aggregated instead.
Restrictions & structured entities
IFRS twelve also requires disclosure of significant restrictions on an entity's ability to access group assets or settle group liabilities, and the nature of risks from interests in unconsolidated structured entities. This is the disclosure standard IFRS ten pointed to at the end of last video — mechanics live in IFRS ten, the real disclosure depth lives here.
One genuinely fresh development, issued this year, and it changes how you even choose between two of these models.
Who gets the fair value option
IAS twenty-eight has always let certain entities — venture capital organisations, mutual funds, unit trusts, investment-linked insurance funds — elect FAIR VALUE instead of the equity method for an associate or joint venture. On the twenty-sixth of June twenty twenty-six, the IASB issued targeted amendments clarifying exactly which entities qualify for that election, tying eligibility to IFRS eighteen's definition of a main business activity of investing in particular types of asset. Effective whenever an entity first applies IFRS eighteen.
Put a number on it
Put a number on it. Under the equity method, Meridian's thirty percent stake closes the year at six hundred and fifty-one thousand euros, built up from cost plus its share of profit, less its share of dividends. If Meridian qualified for the fair value option instead, that same stake would simply be restated to its year end fair value — say, six hundred and eighty thousand euros — with the entire eighty-thousand-euro increase landing straight in profit or loss. Same investment, same year, two very different numbers, because one method builds up from cost and the other resets to market every period.
One exit price, everywhere
One definition sits behind every fair value in this episode too: IFRS thirteen's exit price — what you'd receive to sell, not what you paid to buy — ranked through the same Level one, two, three hierarchy that applies everywhere fair value appears across these standards.
Ahead of IFRS 18's deadline
Why now: stakeholders read IFRS eighteen's new categories differently depending on whether an investment used the fair value option or the equity method, so the IASB moved quickly, ahead of IFRS eighteen's effective date, to settle it — deliberately narrow in scope, touching only the identified conflict.
And that leads straight into the bigger IFRS 18 question for every equity-accounted investment.
Operating, or investing?
If you DO use the equity method, IFRS eighteen asks one more question: is this associate or joint venture INTEGRAL to your main business activity? Integral, and your share of its profit sits in the OPERATING category. Not integral, and it sits in INVESTING. Last video's fully consolidated subsidiary never faced this question at all — it's only ever asked of equity-accounted investments, and the fair value option above makes it disappear entirely, because there's no equity-method income left to classify.
Four industries, real judgement
Where this bites in practice. A private equity fund's numerous minority stakes usually sit at fair value, not equity method — the June twenty twenty-six amendment is written for exactly this profile. An industrial group's associate that supplies its core production line is a strong case for INTEGRAL. Oil and gas consortia are the classic joint OPERATION, each partner booking its own share of the well directly. And infrastructure joint ventures, built through a dedicated vehicle to hold one asset, are almost always joint VENTURES, on the equity method.
Two relationships, one kind of line
Meridian's actual position at the end of year one. Investment in Associate Co, equity method: six hundred thousand at cost, plus sixty thousand share of profit, less nine thousand share of dividend — six hundred and fifty-one thousand euros. Investment in the joint venture, same method: eight hundred thousand euros. Two completely different relationships, significant influence and joint control, and both still land as one single net line — never a grossed-up balance sheet. Compare that to last video's Sub Co: fully consolidated, line by line, with a non-controlling interest in equity. Control looks nothing like this. Influence and joint control do.