Associates & Joint Ventures (Equity Method)
Why owning 20% of a company can sometimes mean showing 100% of nothing on your balance sheet — and other times showing a single number that quietly grows every year, even if you never buy another share.
In plain English
Imagine a company invests early in a fast-growing startup, buying an 18% stake for a modest sum, with a seat on the startup's board. That 18% is too small to CONTROL the startup — the company can't force decisions through — but it's large enough, especially with a board seat, to give it real 'significant influence' over how the startup is run. This stake is neither a simple financial investment (buying a few shares of a random listed company) nor a fully consolidated subsidiary — it sits in a middle category called an Associate, with its own distinct accounting treatment: the Equity Method.
Words you'll need first
The ability to participate in a company's financial and operating policy decisions, without having outright CONTROL — typically presumed when an investor holds between 20% and 50% of the voting rights, and often evidenced by a board seat or participation in policy-making decisions. It's a lower bar than control, but meaningfully higher than being a passive financial investor with no real say.
Instead of adding 100% of the associate's revenue, expenses and assets into the investor's own financial statements the way a controlled subsidiary is consolidated, the Equity Method shows the investment as a SINGLE LINE on the balance sheet — starting at cost, then increasing or decreasing every year by the investor's proportional SHARE of the associate's profit or loss. If a company invests ₹100 crore for an 18% stake, and the associate earns ₹50 crore that year, the investor's 'Investment in Associate' line grows by 18% of ₹50 crore = ₹9 crore — and a matching ₹9 crore shows up as a single line of income in the investor's own P&L, without the associate's individual revenue or expense lines ever being added in.
Three ways to account for owning part of another company
Passive Investment (<20%, no significant influence)
If a stake is small and gives no real influence, it's simply held as a financial investment, measured at fair value each period, with gains or losses typically flowing through profit or loss or Other Comprehensive Income — the investee's own revenue, profit, or balance sheet numbers never touch the investor's financial statements at all.
Associate / Joint Venture (Equity Method, typically 20–50%, or joint control)
As described above: a single line on the balance sheet that grows or shrinks with the investor's proportional share of the associate's profit or loss, and a single 'share of profit' line in the P&L — a halfway house between a passive investment and full consolidation, reflecting real influence without outright control.
A worked example, with numbers
| Year | Associate's own net profit/(loss) | Investor's 18% share | Investment in Associate — carrying value |
|---|---|---|---|
| Start | — | — | ₹500 cr |
| Year 1 | ₹200 cr profit | +₹36 cr | ₹536 cr |
| Year 2 | ₹350 cr profit | +₹63 cr | ₹599 cr |
| Year 3 | (₹100 cr) loss | −₹18 cr | ₹581 cr |
- The investor never touches a single rupee of cash in Years 1 and 2, yet its balance sheet 'Investment in Associate' grows from ₹500 crore to ₹599 crore, and its P&L shows a growing 'share of profit' — purely by owning 18% of a company that's doing well.
- In Year 3, when the associate reports a loss, the investor's own P&L takes an ₹18 crore hit too, even though the investor didn't lose any cash that year — it simply reflects its proportional share of the associate's fortunes.
- None of the associate's own revenue, cost of goods sold, or individual expense lines ever appear in the investor's P&L — only this single, net 'share of profit or loss' figure does, which is why the Equity Method is sometimes called 'one-line consolidation'.
- If the associate's losses ever grow large enough to wipe out the ENTIRE carrying value of the investment, the investor generally stops recognising further losses unless it has additional funding obligations — a natural floor built into the method.
What it does to the financial statements
Impact on the P&L
- The investor's P&L shows a single 'Share of Profit/(Loss) of Associates and Joint Ventures' line, reflecting its proportional share of the investee's net profit or loss — not the investee's revenue, gross margin, or any other individual line item.
- This single line can be a genuinely significant contributor to reported profit, especially for companies with large strategic minority stakes in fast-growing businesses, even though it involves no cash inflow that period.
- A profitable associate boosts the investor's reported net profit without adding any revenue to its own top line — so 'net profit' can grow faster than 'revenue' purely because of a well-performing associate.
- If an investee's fortunes turn, as many early-stage investments do, the investor's own reported profit can take a real hit purely from the associate's underperformance, with zero change in the investor's core operating business.
Impact on the Balance Sheet
- 'Investment in Associates and Joint Ventures' sits as a single line under non-current assets, carried at original cost plus the investor's cumulative share of profits, minus losses and minus dividends received (which are treated as a partial return of the investment).
- This carrying value can significantly understate an associate's actual current market value — for a listed associate whose share price has risen sharply, the equity-method carrying value can sit well below what the stake would fetch if sold, a common source of hidden value in conglomerate balance sheets.
- Unlike a consolidated subsidiary, an associate's own debt, receivables, and other individual balance sheet items never appear on the investor's balance sheet at all — only the single net investment line does.
- If the investor's stake later crosses the control threshold, the Equity Method investment is generally 'stepped up' to fair value and the entity moves to full consolidation from that date — a genuine change in treatment triggered by a change in the level of influence or control.
Which standard covers this
In India this is governed by Ind AS 28 – Investments in Associates and Joint Ventures, notified under the Companies (Indian Accounting Standards) Rules and applicable to companies that follow Ind AS.
How it's recognised globally
Globally, the equivalent is IAS 28, and Ind AS 28 mirrors it closely, including the same 20–50% presumption for significant influence and the same core mechanics of the Equity Method. Under US GAAP, equivalent guidance sits in ASC 323, which uses a very similar 20–50% presumption and largely the same one-line, share-of-profit approach — this is one of the more closely converged areas between Ind AS/IFRS and US GAAP, so an Indian company's and a US company's equity-accounted associate stakes are usually comparable without major adjustment.
Real example — Indian listed company
One of the best-known real Indian examples of this concept is Info Edge's early investment in Zomato (now renamed Eternal). Info Edge first invested in Zomato in 2010 with a modest seed cheque and, through several funding rounds over the following years, built its stake up to nearly 58% at one point — briefly close to a controlling position. As Zomato raised large amounts of fresh capital from OTHER investors in subsequent rounds, Info Edge's own percentage ownership got progressively diluted, without Info Edge selling a single share, down to roughly 18.5% by the time Zomato went public in 2021 — a textbook illustration of a stake sliding from 'majority/control' towards 'significant influence' purely through dilution across successive funding rounds, exactly the kind of ownership journey this article describes. Through the years it held a stake in the associate range with real influence (including board representation), Info Edge's own P&L reflected its proportional share of Zomato's results using the equity method described above, well before Zomato's public listing turned the holding into one of the most closely watched line items in Info Edge's own results commentary. After the IPO, with Zomato/Eternal now a listed, widely-held company, Info Edge's remaining stake (reduced further to around 15% through the IPO's offer-for-sale) continues to be tracked closely, both for its equity-accounted contribution to Info Edge's reported profit and, separately, for its standalone market value as a listed holding — two genuinely different numbers that are easy to conflate.
Where you'll see this
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