Magno Industries Ltd., a public company, is a major supplier to the automotive replacement-parts market, selling parts to nearly every segment of the industry. Magno has a September 30 year-end.

In January 2021, Magno acquired a 5% interest in the common shares of Grille-to-Bumper Automotive Stores, and in June 2021 it acquired an additional 10%.

Grille-to-Bumper is a retail chain of company-owned automotive replacement parts stores operating in most Canadian provinces. Its shares are traded on the Toronto Venture Exchange, but the trading volumes are low. Grille-to-Bumper has a December 31 year-end and, despite being profitable each year for the last 10 years, has never paid a dividend. Magno is a major supplier to Grille-to-Bumper.

After the second acquisition of Grille-to-Bumpers shares, Joseph Peregrine, the CEO of Magno Industries was appointed as a director on Grille-to-Bumpers board.

Magno regards its investment in Grille-to-Bumper as a sound long-term investment. It is in talks to cross-appoint a senior vice-president to Grille-to-Bumper to help implement an advanced software system.

Required: (Point form is fine)

1. What method of accounting would you recommend Magno Industries use for its investment in Grille-to-Bumper Automotive common shares? Explain your reasoning. As part of your answer, discuss the alternatives available. (7 marks)
2. Are there any circumstances under which the method you have recommended might have to be changed? If so, how would Magno Industries account for such a change? (3 marks)