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ACCA Applied Knowledge · Financial Accounting · Associates

Parent P owns 30% of Associate A and has significant influence. A reported profit after tax of $200,000 for the year. How is the associate's result reflected in P's consolidated statement of profit or loss?

The group shows one line, share of profit of associate, equal to its percentage of the associate's profit after tax, here $60,000. Associates are equity accounted, not consolidated line by line, and no non-controlling interest arises.

  1. ALine-by-line: 30% of A's revenue and expenses are added to the group figures
  2. BA single line 'share of profit of associate' of $60,000 is includedCorrect
  3. CDividends received from A are shown as investment income only
  4. D100% of A's profit of $200,000 is included with a non-controlling interest deduction

Explanation

Under equity accounting the investor includes its share of the associate's profit after tax (30% x $200,000 = $60,000) as one line in the consolidated statement of profit or loss. Line-by-line consolidation applies to subsidiaries, not associates. Showing only dividends would be the cost method, which is not used for associates in group accounts.

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