Equity-method dividends: reduce the investment after recording the profit share
Under the equity method, the investor's income from an associate is its share of the associate's adjusted post-acquisition profit, recorded as its own movement in the investment. Distributions received are accounted for separately: under IAS 28 they reduce the investment's carrying amount rather than creating new dividend income. For a 2026 annual period under UK-adopted full IFRS, the rollforward should show profit share, OCI share and dividends as separate movements that agree to the closing carrying amount.
Confirm the equity method applies
Holding 20% or more of the voting power creates a presumption of significant influence, but that presumption can be rebutted. An entity with significant influence over an associate, or joint control of a joint venture, applies the equity method unless an exemption applies, and scope exemptions and eligible fair-value elections can displace it. A 30% holding alone neither proves significant influence nor rules out control.
This article starts after that judgement. It applies UK-adopted full IFRS for a 2026 annual period, without early adoption of IFRS 18 or the 2027 IAS 21 presentation-currency amendment and without an IFRS 19 reduced-disclosure election. It does not cover FRS 102, IFRS for SMEs, Ind AS or US GAAP.
Sources and context, checked :
Profit share in, dividends out
The investment starts at cost and is adjusted for the investor's share of the investee's post-acquisition profit or loss. Distributions received reduce the carrying amount, and the investor's share of the investee's OCI goes to the investor's own OCI. The profit share and the distribution are separate movements: under IAS 28 the distribution reduces the investment instead of being recorded as a second income line. The investment is one line, not 30% of each investee asset and liability.
The profit share is not always a simple percentage of published profit. Acquisition fair-value adjustments, reporting dates and uniform accounting policies can change it, and it is never a percentage of cash received or of pre-acquisition profit. Losses can reduce the interest to zero, after which further losses depend on obligations or payments made for the investee.
Sources and context, checked :
- IAS 28 Investments in Associates and Joint Ventures (UK-adopted, at 1 January 2026), paragraphs 10-11
- IAS 28 Investments in Associates and Joint Ventures (UK-adopted, at 1 January 2026), paragraph 32 beginning on page 11, and paragraphs 33-36
- IAS 28 Investments in Associates and Joint Ventures (UK-adopted, at 1 January 2026), paragraphs 38-39
Worked hypothetical: a 30% associate
The following figures are hypothetical, in GBP. The investor holds a 30% voting and ownership interest throughout, has documented significant influence without control or joint control, and must use the equity method. All investee profit and OCI is post-acquisition, after fair-value adjustments, on aligned policies and dates. There is no impairment, foreign exchange, preference right or tax effect.
The opening carrying amount is GBP300,000. The associate earns adjusted after-tax profit of GBP100,000, reports an OCI gain of GBP20,000, and declares and pays dividends of GBP40,000 in the same period, with the investor's entitlement assumed unconditional. 300,000 + 30,000 + 6,000 - 12,000 = GBP324,000. Reporting GBP42,000 of income would count part of the same return twice.
The entries are Dr investment 30,000, Cr share of associate profit 30,000; Dr investment 6,000, Cr OCI 6,000; on entitlement, Dr dividend receivable 12,000, Cr investment 12,000; and on payment, Dr cash 12,000, Cr dividend receivable 12,000. Where entitlement and payment coincide, the last two combine as Dr cash 12,000, Cr investment 12,000.
| Movement | Investment effect (GBP) | Where recognised |
|---|---|---|
| Opening | 300,000 | Investment |
| 30% of adjusted profit 100,000 | +30,000 | Profit or loss |
| 30% of OCI 20,000 | +6,000 | OCI |
| 30% of dividend 40,000 | -12,000 | Cash or dividend receivable |
| Closing | 324,000 | Investment |
Sources and context, checked :
Separate financial statements follow the chosen basis
In separate financial statements, IAS 27 lets an entity account for these investments at cost, under IFRS 9 or using the equity method, and dividend treatment follows the basis chosen. If the entity validly uses cost for this category, with no impairment or other adjustment, the investment stays at GBP300,000 and the GBP12,000 dividend goes to profit when the right to receive it is established. That is an independent alternative, not an extra entry in the equity-method rollforward.
The example assumes declaration and receipt fall in the same period; a dividend declared after the reporting date raises its own recognition-date questions. Request adjusted investee profit and OCI, ownership and influence evidence, dated dividend resolutions and payment records, acquisition adjustments and last period's carrying amount, then reconcile the investment separately from the cash received.