Potter Ltd holds 16% of the issued share capital in Slytherin Ltd as on 30 June 2020. Mr S.
Snape, a newly appointed accountant has advised to the directors of Potter Ltd that its
investment in Slytherin Ltd should be accounted for using the equity method of accounting.
However, the directors do not fully agree with Mr. Snape as the investment gives the company
less than 20% voting power in Slytherin Ltd the investee and have asked to provide evidence
supporting his advice.
Required:
Discuss what evidence Mr. Snape can present to establish investorassociate relationship
between Potter Ltd and Slytherin Ltd.