Question：Which three of the following investments would be treated as an associate in the parent company's group accounts?
A. A holding of 50% of the ordinary shares of another company.
B. A holding of 40% of the preference and 15% of the ordinary shares of another company.
C. A holding of 60% of the preference and 40% of the ordinary shares of another company.
D. A holding of 45% of the ordinary shares of another company with dominant influence on the Board of that company.
E. A holding of 15% of the ordinary shares of another company with significant influence on the Board of that company.
The correct answers are:
A holding of 60% of the preference and 40% of the ordinary shares of another company;
A holding of 15% of the ordinary shares of another company with significant influence on the Board of that company;
A holding of 50% of the ordinary shares of another company.
解析：Preference shares do not have voting rights so do not have any influence over the running of the company. They are therefore not relevant when trying to determine a parent company's relative control over companies it has invested in.
A holding of 40% of the ordinary shares of another company implies significant influence over that company so the investment would be shown as an associate in group accounts.
A holding of 15% of the ordinary shares of another company does not imply significant influence. However shareholdings in a company are not the only indication of control. If the holding company can demonstrate significant influence in another valid way such as significant influence on the Board of that company, then that investment would qualify to be shown as an associate. Ultimately we are trying to apply substance over form.
A holding of 50% of the ordinary shares of another company could be indicative of a joint venture, which implies more control over the investment than for an associate. However, this would also require an agreement regarding joint control with other investor(s); in the absence of such an agreement, 50% of the ordinary shares implies significant influence and therefore associate status.
A holding of 45% of the ordinary shares of another company with dominant influence on the Board of that company. Looking at shareholdings alone this investment would be classified as an associate. However when the dominant influence on the Board is taken into account it would be more likely to be accounted for as a subsidiary.
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