ACCA Applied Knowledge · Financial Accounting · Associates
Gamma plc owns 45% of the voting shares of Delta Co. The remaining 55% is held by Epsilon plc, which controls Delta's board and sets its policies. Gamma has no board seat. What is the most appropriate treatment of Gamma's investment in its consolidated financial statements?
Gamma should treat the investment as a financial asset. The 20% presumption of significant influence is rebuttable, and Epsilon's control of the board and policy, with no Gamma participation, shows Gamma has no significant influence despite its 45% holding.
- AFinancial asset, because significant influence is not demonstrated despite the 45% holdingCorrect
- BAssociate, because holdings above 20% always give significant influence
- CSubsidiary, because 45% is the largest minority holding
- DAssociate, because Gamma holds more than 40%
Explanation
The 20% presumption of significant influence is rebuttable. Another party has majority control of the board and policy, and Gamma has no board seat or participation, so influence is absent. Treating it as an associate simply because of the percentage ignores this.
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