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Lewis Co is Considering the acquisition of 25% of the equity shares of Harren Co in January.
Which THREE of the following factors illustrates existence of an associate ?
1) Representation on the Board of Directors
2) Significant Influence
3) Greater than 20 % but less than 50 % holding of the preference shares
4) Greater than 20 % but less than 50 % holding of the equity shares
5) Greater than 50% holding of the equity shares
6) ControlSir Kindly solve the question.
I am confirm that point 2 and 4 is associate, but confusion in 1 remaining.
Many thanksI don’t know where you found this question because it is not actually a very good question.
Representation on the Board of Directors is an indicator of having significant influence (which is in a sense duplicated by the second point 🙂 )
Hello
Wanted to clarify, for the following journal entries relating to intra-group trading between parent and associate, what AMOUNT is supposed to be debited and credited?:If A sells to P:
Dr. Group retained earnings (CSOFP)/ P’s share of A’s profit (CSOPL)
Cr. Group inventoryIf P sells to A:
Dr. Group retained earnings (CSOFP)/ cost of sales (CSOPL)
Cr. Investment in associateAlso, for the second journal entry why do we debit cost of sales when inventory is included within the associate’s closing inventory and not the parent’s?
This is not relevant for Paper FA. The syllabus only requires you to know what is meant by an associate and to describe what is meant by equity accounting. You cannot be asked numerical questions on associates or asked for any entries.
(However, just as with subsidiaries, associates are separate legal entities and they do their own accounting just as when they are trading with any other companies. Consolidation does not create a new company and there is no extra double entry involved – there are no new actual t-accounts involved.)
Oh, but can’t we be asked to calculate the figure for investments in associates for inclusion in the consolidated statement of financial position?
i.e. the FA study text does show this kind of calculation:
Cost of investment xx
Add: P% of A’s profits xx
Less: P% of PURP- if P sells xx
Less: impairment losses xxThis is to calculate investments in associates, isn’t this part of our syllabus then?
You are required to be able to describe equity accounting for associates (and this is explained in my free lectures). However you cannot be required to produce numbers – calculations are not asked until Paper FR.
(And as I explained in my previous reply, there are certainly no journal entries involved 🙂 )
Therefore any calculation relating to associates can not be asked? How is that so, because the study text does show 2 calculations: calculation for share of associate’s profit and calculation for investment in associates..
Can these certainly not be asked?
I would imagine they show the calculations just as a way of explaining. If you read the syllabus you can only be asked to describe how associated companies are dealt with.
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