CIMAPRA19-F02-1 Exam - Topic 5 Question 117 Discussion

Actual exam question for CIMA's CIMAPRA19-F02-1 exam

Question #: 117
Topic #: 5

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 thatOP will be included as a subsidiaryand 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?

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

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

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

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

Show Suggested Answer

Suggested Answer: A

by Joesph at Nov 02, 2025, 04:47 AM

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Marg

9 hours ago

I prefer D. Both OP and QR should be equity accounted, and ST's value is too uncertain for consolidation.

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Lottie

6 days ago

A seems right to me. Consolidating OP and QR shows their importance, but ST needs a different approach.

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Cruz

11 days ago

I lean towards C. Consolidating OP makes sense, but ST should be valued at cost since it's not a strong investment.

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Odelia

16 days ago

I think B is the best choice. OP is a subsidiary, and QR and ST are not performing well.

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Berry

21 days ago

Totally agree with B, seems like the best option!

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Jill

26 days ago

Wait, why would ST be valued at cost? That seems off.

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Amos

1 month ago

I think QR should be equity accounted too, makes sense.

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Azzie

1 month ago

Hmm, this question is making my head spin. I think I'll just go with the answer that sounds the most professional - C.

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Dong

1 month ago

Ah, the joys of group accounting. I bet the exam writers had a field day coming up with this one. I'll go with B, just to be safe.

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Alpha

2 months ago

Equity accounting? Sounds like a fancy way to say "it's complicated." I'll go with C just to keep things simple.

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Sharen

2 months ago

Consolidation can be a real headache, but it's the right thing to do. I'm going with B.

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Leota

2 months ago

Hmm, I'm not sure. The question mentions that LM has the power to appoint the majority of the board members on the QR board, so I'm leaning towards C.

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Sommer

2 months ago

I feel like ST should definitely be valued at cost since we only have a minority stake, but I’m confused about how QR fits in with the board representation.

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Maryln

2 months ago

OP should definitely be consolidated, no doubt about it.

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Matilda

2 months ago

I think the correct answer is B. OP should be consolidated and QR and ST should be equity accounted.

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Argelia

3 months ago

Not sure about QR being equity accounted, what if it tanks?

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Lelia

3 months ago

I practiced a similar question where we had to decide between consolidation and equity accounting, and I think it was always about control versus influence.

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Jules

3 months ago

I think QR might need to be equity accounted because we don't have full control, but I can't recall the exact criteria for that.

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Douglass

3 months ago

I remember that if you have control, like with OP, you consolidate, but I'm not sure about QR since we have majority board power.

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Kristeen

4 months ago

Okay, I think I've got it. OP and QR are both subsidiaries, so they need to be consolidated. ST is a bit more complex since LM only owns 30%, but has board representation. Based on that, I believe ST should be equity accounted. So the answer is B) OP should be consolidated and QR and ST should be equity accounted.

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Tamra

4 months ago

I'm a bit confused on how to treat ST since LM only owns 30% but has board representation. Does that mean it's an associate that should be equity accounted, or does the board representation make it a subsidiary? I want to make sure I get the accounting treatment right.

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Amber

4 months ago

Okay, let me think this through step-by-step. OP is a 55% subsidiary, so that one is clear - it needs to be consolidated. For QR, LM has power to appoint the majority of the board, so that's also a subsidiary that should be consolidated. ST is trickier since LM only owns 30%, but has board representation, so I think that one should be equity accounted.

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Irving

4 months ago

This question seems straightforward, but I want to make sure I understand the details correctly before answering. I'll need to carefully review the information about the ownership percentages and board control for each subsidiary.

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