Question
The accountant of Chocolate Ltd, Ms Fraser, has been advised by her auditors that the entity's investment in Corio Milk Ltd should be accounted for
The accountant of Chocolate Ltd, Ms Fraser, has been advised by her auditors that the
entity's investment in Corio Milk Ltd should be accounted for using the equity method
of accounting. Chocolate Ltd holds only 20.2% of the voting shares currently issued by
Corio Milk Ltd. Since the investment was undertaken purely for cash flow reasons based
on the potential dividend stream from the investment, Ms Fraser does not believe that
Chocolate Ltd exerts significant influence over the investee.
Required
Discuss the factors that Ms Fraser should investigate in determining whether an investor-
associate relationship exists, and what avenues are available so that the equity method of
accounting does not have to be applied.
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