When an investor owns 20% to 50% of the voting stock of an investee company, the

Question

When an investor owns 20% to 50% of the voting stock of an investee company, the investor is presumed to exercise significant influence over the investee and the equity methed of accounting is used for the investment unless there is evidence to the contrary. Briefly name and describe the factors that could be evidence of lack of than and therefore the equity methed of accounting would not be used despite own 20% of the voting stock: Briefly name and describe the other factors that could be evidence of significant influence and therefore require that the equity methed of accounting be used even theugh the investor owns less than 20% of the voting stock:

Explanation / Answer

Lack of significant influence

Significant influence

Lack of significant influence

1. Investor failed attempt to represent the board of directors of investee
2. Willfully surrenders the significant rights or there is such contractual agreement
3. Due to control of court , regulator or government
4. A concentration of ownership operates the investee without regard for the views of investee

Significant influence

1. Board of directors representation
2. Management personnel swapping or sharing
3. Materials transactions with the investee
4. Policy making participation
5. Technical information exchanges
6. Interchange of managerial personnel.

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