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ACCA Applied Knowledge · Financial Accounting · Associates

Which of the following best describes the basis on which an investor normally presumes that it has significant influence over an investee, so that the investee is accounted for as an associate under IFRS?

Significant influence is presumed when an investor holds 20% or more of the voting power in the investee, unless clearly demonstrated otherwise. Holdings above 50% usually give control and create a subsidiary instead, while smaller holdings or trading links alone do not create the presumption.

  1. AHolding 20% or more of the voting power, unless it can be clearly demonstrated otherwiseCorrect
  2. BHolding more than 50% of the voting power
  3. CHolding at least 10% of the equity shares
  4. DHolding any shares and having a trade relationship with the investee

Explanation

IAS 28 presumes significant influence where the investor holds 20% or more of the voting power, unless it can be clearly shown otherwise. Over 50% normally indicates control and so a subsidiary, not an associate. A 10% holding or a trading relationship alone does not create the presumption.

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