ABC Ltd. has a 15% holding in the shares of XYZ Ltd. In addition, ABC has, through one of its subsidiaries, a currently exercisable option to buy 15% more shares in XYZ. Although the exercise price is in the money, ABC does not have the intention and the financial ability to exercise this option. How should this investment be classified?
A. A subsidiary
B. An investment
C. A joint arrangement
D. An associate
Based on the information provided, ABC Ltd.'s investment in XYZ Ltd. should be classified as an "associate." With a 15% holding and the option to acquire an additional 15% stake, although not exercised, ABC has significant influence over XYZ Ltd., which is a key characteristic of an associate as per the definition in the accounting standards. Therefore, the correct answer is:
D. An associate
