Skip to content

ACCA Applied Knowledge · Financial Accounting · Associates

Gamma Co owns 25% of Delta Co's ordinary shares. Delta's other 75% is held by a single shareholder who has always dictated Delta's policies and has refused Gamma any board seat or information. Which treatment is most appropriate for Gamma's group accounts?

Gamma should account for the holding as an investment, not an associate. The 20% presumption of significant influence is rebutted because another shareholder dictates policy and Gamma has no board seat or information. Without influence, equity accounting does not apply, and Gamma has no control either.

  1. AEquity accounting, because Gamma holds at least 20%
  2. BTreat Delta as a subsidiary of Gamma
  3. CAccount for the holding as an investment, because significant influence is lackingCorrect
  4. DProportionately consolidate 25% of Delta's assets and liabilities

Explanation

The 20% threshold is only a presumption and can be rebutted. Here Gamma has no board seat, no information and no participation in policy, so it lacks significant influence. The investment is therefore a financial asset rather than an associate. Proportionate consolidation is not permitted for associates.

Did you get it right without looking?

One question tells you little. A timed set on Associates shows your real accuracy, how long you take and where you lose marks.

Practise AssociatesFree diagnostic mock

More Associates questions