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:

By consolidating Beta Co line-by-line

Using the equity method

As a simple investment held at fair value through profit or loss

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.

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