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

Alpha acquires 30% of the voting shares of Beta and obtains two of the seven seats on Beta's board. Alpha participates in policy-making decisions, and no other shareholder holds more than 20%. Under IFRS Accounting Standards, how should Alpha account for its investment in its consolidated financial statements?

Alpha should account for Beta as an associate using the equity method. A 30% holding presumes significant influence under IAS 28, supported by board seats and policy-making participation. Control is absent, so consolidation is not appropriate, and falling below 50% does not mean fair value treatment applies.

  1. AAs an associate using the equity method, because significant influence is presumed and evidenced by board participationCorrect
  2. BAs a subsidiary, using full consolidation with a non-controlling interest
  3. CAs a financial asset at fair value through profit or loss, because the holding is below 50%
  4. DAs a joint venture, because policy decisions are shared with other shareholders

Explanation

A holding of 20% or more of voting power presumes significant influence under IAS 28, and board representation and policy participation confirm it. Without control the investment is not a subsidiary. The 50% threshold is relevant to control, not to significant influence, so option C is wrong.

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