ExpertEasy2 marksMultiple Choice
ACCA · Question 31 · Preparing simple consolidated financial statements
Section A
Alpha Co owns 30% of the ordinary shares of Beta Co and has representation on Beta Co's board of directors. Alpha Co does not have control over Beta Co.
How should Alpha Co account for its investment in Beta Co in its consolidated financial statements?
Section A
Alpha Co owns 30% of the ordinary shares of Beta Co and has representation on Beta Co's board of directors. Alpha Co does not have control over Beta Co.
How should Alpha Co account for its investment in Beta Co in its consolidated financial statements?
Answer options:
A.
By consolidating Beta Co line-by-line
B.
Using the equity method
C.
As a simple investment held at fair value through profit or loss
D.
By proportionately consolidating 30% of Beta Co's assets and liabilities
How to approach this question
Identify the level of influence. 30% + board representation = Significant Influence. Significant influence = Associate. Associates are accounted for using the equity method.
Full Answer
B.Using the equity method✓ Correct
Ownership of 20%-50% generally indicates significant influence, making the investee an associate. Under IAS 28, investments in associates must be accounted for using the equity method in the consolidated financial statements.
Common mistakes
Choosing line-by-line consolidation, which is only for subsidiaries.
Practice the full ACCA FA — Financial Accounting Practice Exam 1
65 questions · hints · full answers · grading
More questions from this exam
Q01**Section A**
BioGenix Ltd, a pharmaceutical startup, has spent $2 million on researching a new ...MediumQ02**Section A**
Which of the following bodies is primarily responsible for issuing International F...EasyQ03**Section A**
SolarTech Manufacturing recently upgraded its primary assembly line. Which TWO of ...MediumQ04**Section A**
AgriGrow Ltd sells specialized farming equipment. A customer purchases a tractor f...MediumQ05**Section A**
Oceanic Logistics provides shipping services. They issue an invoice for $10,000 to...Medium