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ACCA Applied Skills · Financial Reporting · The concepts and principles of groups and consolidated financial statements

Alpha acquires 30% of the equity shares of Beta and can exercise significant influence over it. Alpha has no control over Beta. In Alpha's consolidated financial statements, how is the investment in Beta accounted for?

The investment is accounted for as an associate using the equity method under IAS 28. Significant influence without control means a single line is shown in the statement of financial position, plus a share of profit, rather than line-by-line or proportionate consolidation.

  1. AAs a subsidiary, consolidating 100% of Beta's assets and liabilities line by line
  2. BAs an associate, using the equity methodCorrect
  3. CAs an associate, using proportionate consolidation of 30% of each line item
  4. DAs a financial asset held at cost, with dividends recognised as income

Explanation

IAS 28 requires an investment over which the investor has significant influence, but not control, to be accounted for using the equity method. Proportionate consolidation is not permitted for associates. Consolidating 100% line by line applies only to subsidiaries.

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