AirAsia to start equity accounting for TAA and IAA from 2013

Victoria
By Victoria August 23, 2011 11:22

AirAsia to start equity accounting for TAA and IAA from 2013

AirAsia will only start equity accounting its share of profits from Thai AirAsia (TAA) and Indonesia AirAsia (IAA) when the unrecognised losses at the carriers have been reversed. However analysts expect the associate airlines will be on target to post a profit from 2013. Analysts added that another consideration would be the impending listings of TAA and IAA, which would see an equity injection and allow them to re-capitalise. This could expedite AirAsia’s equity accounting.

As of Dec 31, 2010, TAA’s unrecognised share of net loss is RM127.8mil and IAA’s unrecognised share of net loss is RM196.6mil (based on AirAsia’s first quarter results announcement) for a total of RM324.4mil. TAA achieved a net profit of RM283.10mil in 2010, compared with a net loss of RM80.42mil in 2009 while IAA also recorded a net profit of RM165mil last year against a loss of RM65.77mil in 2009.

AirAsia, however, posted a net profit of RM171.9mil, TAA made a net profit of RM80.72mil and IAA recorded a net profit of RM11.1mil for the quarter ended March 31, 2011.

AirAsia has been criticized for not equity accounting the losses suffered by its associates and there were calls for greater transparency over the financial numbers recorded by the associates. The airline subsequently explained that with AirAsia having written down to zero its investments for both TAA and IAA in AirAsia’s balance sheet, it did not need to recognise any further losses made by TAA and IAA as it had no accounting obligation to make good on those losses. The equity method is an accounting method whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s share of the profit or loss of the investee.

Victoria
By Victoria August 23, 2011 11:22
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