65.3k views
5 votes
A change in Accounting Method would be necessary because of which of the following circumstances?

a)An increase in ownership percentage from 25% to 40%
b) A decrease in ownership percentage from 25% to 15%
c) An increase in ownership percentage from 10% to 15%
d) A decrease in ownership percentage always triggers a change in accounting method.

User Durbachit
by
7.4k points

1 Answer

7 votes

Answer:

b) A decrease in ownership percentage from 25% to 15%

Step-by-step explanation:

There is change in accounting method when the shareholding is 20% or more.

Under Consolidation there are two methods:

Equity method: This is used when the shareholding is 20% or more, and there is significant influence. Under this method all the assets and liabilities are accumulated in the consolidated balance sheet.

Proportional Consolidation method: This is generally used when the shareholding is merely shown as an investment, and the balances of assets and liabilities are not accumulated.

Thus, there is a change in method of accounting when the shareholding is more than 20%. This is in case b as change is from 25% to 15% and thus, it will change from equity method to proportional consolidation method.

User Maksim Dmitriev
by
7.8k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.