Under IAS 28, an investor holds 30% of the voting shares of another entity and has representation on its board but does not control it. How is the investment accounted for in the consolidated financial statements?
Answer and explanation
Correct answer: A. As an associate using the equity method
- Step 1: Holding 20% to 50% of voting rights with board representation points to significant influence.
- Step 2: The investee is therefore an associate under IAS 28.
- Step 3: The investment is shown in one line, at cost plus the investor's share of post-acquisition profit, less dividends received.
Answer
As an associate using the equity method.
Why not the others: Subsidiaries are controlled entities. Significant influence without control does not require this. Cost and dividend treatment is not appropriate where significant influence exists. Proportionate consolidation is not permitted for joint ventures under current IFRS.
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