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ACCA Applied Knowledge · Financial Accounting · Associates

Alpha holds 30% of the equity shares of Beta and has the right to appoint two of the seven directors. Which statement is correct for Alpha's consolidated financial statements?

Beta is an associate and is equity accounted. Alpha's 30% holding exceeds the 20% presumption of significant influence and it has board representation, but two of seven directors does not give control, so Beta is not a subsidiary and is not just a fair value investment.

  1. ABeta is an associate and is equity accountedCorrect
  2. BBeta is a subsidiary and is consolidated line by line
  3. CBeta is a simple investment held at fair value
  4. DBeta is a subsidiary because Alpha holds more than 25%

Explanation

A 30% holding exceeds the 20% presumption and the board seats show participation in policy decisions, but two of seven directors is not control. Beta is therefore an associate, accounted for using the equity method. Line-by-line consolidation requires control, normally over 50% of votes.

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