ACCA Strategic Business Reporting (SBR) Practice Exam

What percentage of shareholding is common for associates?

1. Less than 20%

2. 20% to 50%

3. Greater than 50%

4. Exactly 75%

The correct answer is: 20% to 50%

The correct choice indicates that a shareholding percentage between 20% and 50% is common for associates. In the context of accounting and business reporting, an associate is typically defined as a company in which the investor has significant influence but does not have control. This significant influence is usually represented by holding 20% to 50% of the voting power. When an investor holds 20% or more but less than 50% of the shares, they are generally considered to have significant influence over the associates’ financial and operating policies. This range allows for the investor to participate in the decision-making processes and affects the operations of the associate without having nominal control, which would occur at a level above 50%. The designation of an associate is important for consolidating financial results, as it allows for the use of the equity method, where the investor recognizes their share of the profits or losses of the associate in their financial statements. Thus, understanding this percentage is critical for accurate classification and reporting in the financial statements.