ACCA Strategic Professional · Strategic Business Reporting (International) · Associates and joint arrangements
Alpha plc acquires 18% of the voting shares of Beta Ltd. Alpha also has the right to appoint one of Beta's seven directors and Beta depends on Alpha's technology licence for its main product. Under IAS 28, how should Alpha account for its investment in Beta?
Alpha should treat Beta as an associate and use the equity method. Although the holding is below 20%, board representation and Beta's dependence on Alpha's technology are indicators of significant influence, and the 20% threshold is only a rebuttable presumption.
- AAs an associate using the equity method, because the board seat and technological dependency indicate significant influenceCorrect
- BAs a financial asset at fair value under IFRS 9, because holdings below 20% are always presumed not to give influence
- CAs a subsidiary, because technological dependency indicates control
- DAs a joint venture, because Alpha and Beta depend on each other
Explanation
The 20% presumption is rebuttable. Board representation and essential technical information or dependency are indicators of significant influence under IAS 28, so the equity method applies. Treating it as a simple financial asset ignores these indicators.
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