LM has made the following share purchases during the year:• Purchased 55% of the equity...

CIMA F2 Question Answer

LM has made the following share purchases during the year:

• Purchased 55% of the equity share capital of OP.

• Purchased 45% of the equity share capital of QR. LM have the power to appoint the majority of board members on the QR board.

• Purchased 30% of the equity share capital of ST. LM is represented by one director on the main board of ST which has five members in total. The other 70% of ST's equity share capital is owned by a single company, UV.

The Managing Director has told you that OP has performed well, but both QR and ST have not performed as expected. He is therefore pleased that OP will be included as a subsidiary and that QR and ST will only be included as investments in the group financial statements.

In accordance with the ethical principle of professional competence and due care how should the investments in OP, QR and ST be treated in the group financial statements?

OP and QR should be consolidated and ST should be equity accounted.

OP should be consolidated and QR and ST should be equity accounted.

OP should be consolidated, QR should be equity accounted and ST should be valued at cost.

OP and QR should be equity accounted and ST should be valued at cost.