Which of the following statements more adequately reflects the current accounting position in regards to accounting for an associate entity?
A) The reporting by the investor of dividend revenue under the cost method is perceived to be an adequate indicator of investment performance in the case of a significant investment.
B) Even with representation on the associate's board of directors, an investor cannot have the power to manipulate its reported earnings (through participation in the dividend policy decisions of the associate) and thus present a misleading picture of its earnings performance.
C) Because of the varying dividend policies of investees, it is unlikely that dividend income will provide a reliable indicator of the investment performance of any associate.
D) None of the above.

Question

Quizplus · Accepted Answer

The current accounting position recognizes that dividend income may not provide a reliable indicator of investment performance due to varying dividend policies of investees. This is reflected in International Accounting Standard 28, which requires investors to account for associates using either the equity method or the cost method of accounting. Under the equity method, the investor would recognize its share of the associate’s profits or losses in its own financial statements, rather than relying solely on dividend income.

Which of the Following Statements More Adequately Reflects the Current