Question 1 - Part a

In this lesson

1. 0:00 Part A: Classifying Green as an Associate
2. 1:23 Defining Significant Influence and Control
3. 3:57 Why Green is Not a Subsidiary
4. 7:00 Conclusion: Associate Classification Confirmed
5. 8:33 Part B: Accounting for Associates Using Equity Method
6. 10:43 Prior Period Adjustment for Incorrect Treatment
7. 14:41 Calculating Associate Investment Value
8. 18:28 Adjusting Financial Statements for Associate

About this lesson

This is a core concept for Financial Reporting and Strategic Business Reporting papers, and it's essential for consolidation questions in case studies. The first part of this question asks you to discuss why Green Company should be classified as an associate based on a 30% shareholding. You'll see how to structure your answer by defining significant influence—the ability to participate in financial and operating policy decisions without control—and contrasting it with the definition of control under IFRS 10. The key is to show the examiner you understand the criteria: whilst shareholdings over 50% are presumed to give control, you must consider all relevant factors. Here, the remaining 70% is held by multiple investors with less than 10% each, voting independently with no influence from the parent company. This demonstrates significant influence rather than control, making Green an associate. The second part requires you to explain how to account for the associate in the consolidated statement of financial position at 31 March X6 using the equity method. Associates are valued at cost plus the parent's share of post-acquisition movements in net assets, presented as a single line item under non-current assets. Because Green has been incorrectly accounted for since purchase on 1 April X4, you'll need to recognise this as an accounting error under IAS 8 and make a prior period adjustment, restating the comparative figures. You'll then calculate the correct value: the original investment of £100 million plus 30% of the movement in net assets from acquisition to year-end (£348m less £286m), giving a total associate value of £118.6 million. Throughout this debrief, you'll see how to work methodically through a consolidation adjustment, bringing calculations into your answer as you progress through each part. This approach keeps you focused, ensures consistency, and helps you secure method marks even if individual figures contain errors—a crucial strategy for maximising your marks under exam conditions.

Duration: 21m