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ACCA Strategic Professional · Strategic Business Reporting (International) · Associates and joint arrangements

Alder plc holds 18% of the voting shares of Birch Ltd. Alder has the right to appoint one of the seven directors of Birch's board and takes part in Birch's policy-making decisions on dividends. No other shareholder holds more than 20%. How should Alder account for its investment in its consolidated financial statements under IFRS Accounting Standards?

Alder should use the equity method and treat Birch as an associate. The 20% threshold is only a presumption, and board representation plus participation in dividend policy decisions show significant influence. Control and joint control are not indicated, so subsidiary or joint venture treatment is wrong.

  1. AAs an associate using the equity method, because significant influence is presumed to existCorrect
  2. BAs a financial asset at fair value, because the holding is below 20%
  3. CAs a subsidiary, because it has board representation
  4. DAs a joint venture, because it participates in policy decisions

Explanation

A holding of less than 20% creates only a rebuttable presumption of no significant influence. Board representation and participation in policy-making, including dividend decisions, are indicators of significant influence under IAS 28. The equity method therefore applies. Treating it as a financial asset ignores these indicators.

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