Jupiter Co purchased a 70% holding in Nano Co’s ordinary shares on 1 January 2010 for BD12.2 million when the retained earnings of Nano were BD7.2 million. The retained earnings of Nano on 31 December 2014 were BD21.2. Since the acquisition, there has been no impairment of the goodwill in Nano.

Jupiter also has a 40% holding in Steel Co’s ordinary shares, which it acquired on 1 July 2011 for BD8.2 million when the retained earnings of Steel were BD12.4 million. The retained earnings of Steel on 31 December 2014 were BD18.4 million.

An impairment test conducted at the year-end revealed that the investment in the associate (Steel) was impaired by BD1 million.

During the year, Steel sold goods to Jupiter for BD6 million at a profit margin of 40%. One-third of these goods remained in Jupiter’s inventories at the year-end. The retained earnings of Jupiter on 31 December were BD83.2 million.

Required:

1. Define an associate and explain the principles and reasoning for the use of equity accounting, in the context of IAS 28 Investments in Associates and Joint Ventures.

Calculate the following amounts for inclusion in the consolidated statement of financial position of the Jupiter Group as at 31 December 2014:

1. Investment in associate
2. Consolidated retained earnings