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The accountant of Chocolate Ltd, Ms Fraser, has been advised by her auditors that the entity's investment in Corio Milk Ltd should be accounted for using the equity method of accounting. Chocolate Ltd holds only 20.2% of the voting shares currently issued by Corio Milk Ltd. Since the investment was undertaken purely for cash flow reasons based on the potential dividend stream from the investment, Ms Fraser does not believe that Chocolate Ltd exerts significant influence over the investee.

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Problem 1: Discuss the factors that Ms Fraser should investigate in determining whether an investor- associate relationship exists, and what avenues are available so that the equity method of accounting does not have to be applied.

Reference no: EM132780761

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