Barcelona Arts has a 10% holding in the shares of Costa del Sol Ltd. In addition, one of Barcelona Arts’ subsidiaries, Sevilla Inc., which is 55% owned, has a holding of 35% of the shares in Costa del Sol Ltd. How should this investment be classified by Barcelona Arts?
A. A subsidiary
B. A joint arrangement
C. An associate
D. An investment
Barcelona Arts' investment in Costa del Sol Ltd. should be classified as follows:
Barcelona Arts directly holds 10% of Costa del Sol Ltd., and through its 55%-owned subsidiary Sevilla Inc., it effectively has an additional 35% indirect interest (35% direct ownership of Sevilla Inc. multiplied by 55% ownership of Sevilla Inc. by Barcelona Arts). This combined interest amounts to more than 45%, which indicates that Barcelona Arts has significant influence over Costa del Sol Ltd. Therefore, the correct classification for this investment is:
C. An associate
