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ACCA Strategic Professional · Strategic Business Reporting (International) · Group accounting including statements of cash flows

Alpha plc acquires 30% of the voting shares of Beta Ltd and has the right to appoint one of Beta's seven directors. Alpha takes part in policy-making decisions, and there is interchange of managerial personnel between the two entities. No other shareholder holds more than 20%. Which statement is correct under IFRS Accounting Standards?

Beta is an associate accounted for under the equity method. Holding 30% of votes raises a presumption of significant influence, supported by board representation, policy-making participation and managerial interchange. There is no evidence of control or contractual joint control, so consolidation or proportionate consolidation is not appropriate.

  1. AAlpha has significant influence, so Beta is accounted for as an associate using the equity methodCorrect
  2. BAlpha has no significant influence because it holds less than 50%, so Beta is a financial asset under IFRS 9
  3. CAlpha has control, so Beta must be fully consolidated
  4. DAlpha has joint control, so Beta is a joint venture accounted for by proportionate consolidation

Explanation

IAS 28 presumes significant influence at 20% or more of voting power, and board representation, participation in policy-making and managerial interchange are indicators. Nothing here shows control or contractually shared control. Applying IFRS 9 because the holding is below 50% confuses significant influence with control.

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