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Which of the following statements, if any, are correct in relation to accounting for associates?
(1) Equity accounting will always be used when an investing entity holds between 20% – 50% of the equity shares in another entity.
Sir why is this statement incorrect?
You must ask in the Ask the Tutor and not as a comment on a lecture!
However, I do explain in the lecture that we only account for associates if there is also a subsidiary. If there is no subsidiary then we do not equity account for associates.
Thanks alot
very helpful
Thank you for your comment 🙂
We know that an associate have between 20% – 50% of shares and for more than 50%, it is a subsidiary. But then how shall we differentiate between a parent and subsidiary if for eg company A has invested 51% of shares. ( by definition it could be both a parent and a subsidiary, right?)
You can have A owing more than 50% of B and then B holding more than 50% of C (and then B is a subsidiary of A but the parent of C).
However things like this are dealt with in Paper F7.
In F3 you will only have a parent owning a subsidiary.
Thank you so much for these lectures
Thanks Sir for your brilliant lecture.
But, what is the treatment of inter-entity transactions (goods sold at a profit) do we eliminate when comes to consolidation?
They are eliminated on consolidation (and there is the PURP adjustment if any of the goods remain in inventory).
Both points are dealt with in the other lectures on consolidations.
Dear john What is the difference between associate and simple investment?
An associate is where one company has significant influence over another – usually where they own between 25% and 50% of the shares.
It is only relevant if the company owing the shares is already producing consolidated accounts because they also have a subsidiary.
Hello I went through all the lectures on consolidation and found your teaching method to be really good. Do u specifically do consolidation for f7 also
Dear John,
Acca become easy for me just because of you. I do not have words to appreciate you.
Kind regards,
Irum
Hey Big up, and kudos to the team at Open tuition, for I have just passed my F3 paper with a cool 70%, solely relying on the works and lectures on Open tuition.
Advice to any student: believe in Open tuition and you will make it.
True to the cause of Open Tuition, best things in life are free.
Thats great – congratulations 🙂
Mr. Moffet, What if a company P has exactly 50% of shares of Q?
A subsidiary or Associate
I have the same question..
IFRS 10 now takes care of this – even though the big shareholder does not have >50% of the votes, IFRS 10 talks about effective control. Providing the distribution of the remaining shares is relatively widespread, then our 50% holder has effective control and the investee would therefore be treated as a subsidiary
THANK YOU SO MUCH SIR! 😀
You’re welcome
HI there ,
I am not sure if 100% correct but i think i have some answers for these questions
Q:1 I believe you are saying that for example company A has 51% shares in company B, then company B will have remaining 49% shares which will make it a subsidiary.
Q:2 even if company A has less than 50% shares in company B , if it has more than 50% voting rights than it will be the parent cause all the financial n operational decisions of B will be in “control” of A
( one more to add is that ordinary shares carry voting rights so , if 50% ordinary shares then 50% voting rights, but the condition you are stating can also exist )
Q:3 share premium comes from share capital because when we record share capital we also record the corresponding share premium for the same number of shares so , if a company owns 51% of ordinary shares then it will own the same percentage of share premium . Now if we calculate it as
51%*100K +51%*50K= 76.5K which is 51% of 150K
I am not sure if these will help you , but if they do then I am glad .
Thank you very much Open Tuition team, very nice lecture, however I have 3 questions, I’ll be very grateful if someone could help me on them:
Question 1: We know that an associate have between 20% – 50% of shares and for more than 50%, it is a subsidiary. But then how shall we differentiate between a parent and subsidiary if for eg company A has invested 51% of shares. ( by definition it could be both a parent and a subsidiary, right?)
Question 2: We are aware a company can control even if it has less than 50% voting rights as long as the mentioned conditions (pg 165) are met. Suppose in a question where the conditions are not mentioned but it says a company owns less than 50% of share capital, but more than 50% of voting rights, does it still have control as parent?
Question 3: If ordinary share is $100K and share premium is $50K, a company owns 51% of ordinary share and only 5% of prem share, the overall ownership is less than 50% of the total capital amount (51% * 100K + 5% * 50K) = $53500 out of $150K, does it still control as parent?
Thank you
all consolidation lectures very helpful
nice lecture…:)