Penfold owns 30% of Arnold , an unrelated entity. Penfold are not able to appoint any members of board of Arnold as other 70% is held by another investor who is able to appoint all members of board
How should investment in Arnold be recorded in consolidated SOPF of Penfold?
a) Subsidiary
b) Associate
c) Financial instrument
d) Contingent asset
Correct ans is C but please can you explain?
Also Arnold is associate of Penfold na?
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Theory mtq
* I am only a student*
Subsidiary - 50 - 100% - control - full consolidation (P + S)
Associate - 20 - 49% - significant influence - ( Equity accounting - investment)
Investment - 0 - 29% - investment (As for single entity accounts)
The percentages are important, but also the member of the company acquiring's role in the board of directors ( ex. more than half, even if acquiring less than 50%, can actually mean that the company acquiring has control).
You will find more under "introduction of groups", whichever provider you are using. Hope it helps.
But here the answer is financial instruments, however, 30% holding falls under associate. So I do not understand this
7y ago#3Hi,
I doubt you'd see a question like this in FR, it is more linked to SBR, but in case you do then the answer is correct.
It isn't just down to the percentage owned in order to determine the accounting treatment, you need to look at what can be done with the ownership percentage. If we are to equity account then we need to have influence, so the power to participate in the decision making. Here we may have 30% but we cannot influence anything as we cannot get a seat on the board, so it is not an associate and must be treated as a financial asset investment.
Thanks
Thanks a bunch for your explanation, it makes sense 100% now.
7y ago#5Glad it's helped, and make sure that you remember it when you're studying SBR!
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