ACCA Applied Knowledge · Financial Accounting · Associates
Alpha plc holds 25% of the voting shares of Beta Ltd and has appointed one of Beta's five directors. Alpha has no other involvement. Under IFRS, how should Alpha account for its investment in its consolidated financial statements?
Alpha should treat Beta as an associate and use the equity method. A 25% voting holding, together with board representation, indicates significant influence but not control, so full consolidation is inappropriate.
- AAs an associate using the equity methodCorrect
- BAs a subsidiary using full consolidation
- CAs a simple investment at cost with no further adjustment
- DAs a joint venture using proportionate consolidation
Explanation
A holding of 20% or more of voting power creates a presumption of significant influence, and board representation supports this. The investment is therefore an associate and is equity accounted. Full consolidation requires control, which is not indicated here.
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