When an investor reporting under IFRS owns more than 20% of the common shares of a corporation, it is generally presumed that the investor
A)has insignificant influence on the investee and that the cost method should be used to account for the investment.
B)should use the fair value model to account for the investment.
C)will prepare consolidated financial statements.
D)has significant influence on the investee and that the equity method should be used to account for the investment.

Question

Quizplus · Accepted Answer

According to IFRS, owning more than 20% of the common shares of a corporation generally indicates significant influence on the investee. Therefore, the equity method should be used to account for the investment. This method reflects the investor's share of the investee's net assets and profits or losses, and it requires the investor to recognize its share of the investee's income in its own income statement. Consolidated financial statements may also be required if the investor has control over the investee. The fair value model may be used in some circumstances, but it is not the default option for ownership levels above 20%. The cost method is generally reserved for investments in which the investor has insignificant influence.

When an Investor Reporting Under IFRS Owns More Than 20