Q5

Your client Iced Ltd, which controls a number of companies, has recently purchased a 24% shareholding in Tea Ltd. The new accountant, Mr Bushell, has asked your advice about the preparation of the Iced Ltd’s consolidated accounts with respect to the shareholding in Tea Ltd. They are confused about the term “significant influence” and how they should include Tea Ltd’s results in the consolidated accounts.

Required

Write a business letter to the accountant explaining the term “significant influence” and how to recognise it, and the appropriate method for including Tea Ltd’s results in Iced Ltd’s consolidated accounts. Marks will be awarded for the content of the letter, the structure of the business letter and the manner in which it is presented.