Elimination of reciprocal interests not accounted for under the equity method
Investor A has a 20% interest in an Associate B. Associate B has a 10% interest in A, which does not give rise to significant influence.
Scenario 1
Associate B recognises a profit of $1,300 for the year, which includes a dividend of $100 received from Investor A and a gain of $200 from measuring its investment in Investor A at fair value through profit or loss.
In this scenario, Investor A”s equity method share of Associate B”s profit and loss is $200, being 20% of Associate B”s profit of $1,000 after excluding income (dividend of $100 plus fair value gain of $200) on its investment in Investor A.
Scenario 2
Associate B recognises a profit of $1,100 for the year, which includes a dividend of $100 received from Investor A, and recognises $200 in other comprehensive income from measuring its investment in Investor A as an available-for sale financial asset.
In this scenario, Investor A”s equity method share of Associate B”s profit and loss is $200, being 20% of Associate B”s profit of $1,000 after excluding income (dividend of $100) on its investment in Investor A. Investor A”s share of Associate B”s other comprehensive income also excludes the gain of $200 recognised in other comprehensive income arising from its investment in Investor A.