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24. Which of the following investments of Teacup Co should be equity accounted in the consolidated financial statements?
1. 40% of the non voting preference share capital in A Co.
2. 18% of the ordinary share capital in B Co with two of the five directors of Teacup Co on the board of B Co.
3. 50% of the ordinary share capital of C Co, with five of the seven directors of Teacup Co on the board of C Co.The correct answer is 2.
Could you please help to understand why? And remind me the syllabus to review?
ThanksGabbi
Equity accounting is the way we deal with associated companies.
An associate is where there is significant influence.1 is wrong (because owning non-voting shares does not give influence)
3 is wrong, because C is a subsidiary (and therefore consolidated)
2 is right – B is not a subsidiary, but there is significant influence.
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