Associate Company

Significant influence means the investor can participate in the associate's financial and operating decisions, for example by having a seat on its board, without controlling it.

Associates are not consolidated line by line like subsidiaries. Instead, they are accounted for using the equity method. The investor records its investment at cost and then increases or decreases it by its share of the associate's profits or losses. Dividends received reduce the investment's carrying amount.

For example, a company buys 30% of an associate for 15 million. In the first year, the associate earns profit of 4 million and pays dividends of 1 million. The investor records its 30% share of profit, 1.2 million, as income, and receives 300,000 in dividends. The investment's carrying amount rises to 15.9 million.

The 20% to 50% range is a guideline, not a fixed rule. An investor with 15% might have significant influence through board representation, while one with 25% might not if another shareholder controls the company.

Investments below the level of significant influence are usually treated as ordinary financial investments.