Maple Leaf Technologies Inc. $($MLT$)$ operates a chain of technology retail stores

across Canada. The company was founded by Claire Thompson, who started with a

single store in Vancouver. Over the years, the company expanded rapidly, opening new

stores in major cities across the country. Despite early success, MLT recently

encountered financial difficulties due to aggressive expansion plans and an unexpected

downturn in consumer electronics demand.

To avoid financial collapse, Claire Thompson sought an investment from a major

Canadian telecommunications company, NorthStream Communications Ltd$.($NSC$).$

NSC purchased $30\%$ of the newly issued common shares of MLT for $$1\mathrm{.}2$ million in

cash. As a result of this transaction, NSC gained a one$-$third interest in MLT$.$

Additionally, NSC secured a seat on MLT$$s board of directors and entered into a

technology$-$sharing agreement where MLT would use proprietary technology developed

by NSC to enhance its retail operations.

Although MLT continues to be managed by Claire Thompson and her team, with little

day$-$to$-$day involvement from NSC$,$ these additional arrangements have increased

NSC$$s ability to influence key strategic decisions.

At the end of the fiscal year, NSC$$s accountants are debating how to report this

investment in the company$$s financial statements under IFRS.

$$ Accountant A suggests that the investment should be recorded at fair value

through profit or loss, arguing that the investment is primarily a financial

transaction aimed at earning a return, without any intention of exercising

significant influence over MLT$.$

$$ Accountant B proposes using the equity method, stating that NSC$$s $30\%$

ownership stake, its seat on the board, and the technology$-$sharing agreement

give it significant influence over MLT$,$ even if it does not actively participate in

day$-$to$-$day management.

$$ Accountant C supports reporting the investment using the equity method but for

a different reason. They argue that the investment should be treated as an

associate because NSC has the ability to influence the strategic direction of MLT

due to its substantial ownership stake and technological dependence.

Required:

$1.$ What are your key considerations in making the decision how NSC should report its

investment in MLT$?$

$2.$ Discuss when IFRS $9$ and IAS $28$ would apply?

$3.$ How should NSC report its investment in MLT$?$ Your answer should include a

discussion of all three accountants$$ positions.

$4.$ Would your decision change if the ownership stake was $18\%$ but all other factors

remained in place?