The accounting for equity investments is one of the hot topics in finance and accounting because it can have significant consequences on the profitability and the financial position of companies. The debate covers several accounting aspects including the substance vs. form dilemma.
Normally the accounting method for an equity investment depends on the level of influence achieved by one company when investing in another company. For example, a company that achieves control over another company is required to consolidate its financial statements with those of the investee. The accounting standards normally define specific quantitative cut-off ranges of ownership percentages to guide the assessment of influence. The standards also use additional qualitative criteria to help assess influence.

Required:
1. Explain the concept of control and its relationship to ownership percentage.
2. Which criteria do you prefer to use to classify equity investments (quantitative, qualitative, or a combination of both)? Explain your answer (you may wish to highlight the advantages and disadvantages of each one)

Answer rating: 100% (QA)

Controlling Interest Controlling Interest means i 51 percent or more of the ownership interests in a... View the full answer