Sparrow owns 18% of the ordinary shares of Blackbird. The remaining 82% of the ordinary shares are held by hundreds of investors, and no single investor has a holding of more than 5%.

Blackbird has six directors and Sparrow is able to appoint two of these.

Blackbird is one of Sparrow's key suppliers. Sparrow's operations and human resource managers spend several days a year at Blackbird in order to ensure that trading between the two entities is as smooth as possible.

In the consolidated financial statements, the directors of Sparrow wish to account for the investment in Blackbird as a financial asset.

Required:

Discuss whether the proposed accounting treatment.

Answer rating: 100% (QA)

Answer I Step 1 i The proposed accounting treatment is not correct The investment should be accounte... View the full answer