Oporto Wines has a 30% holding in Algarve Beaches Company. The remaining 70% of the shares are held by two other companies, which are parties to an agreement between themselves as to the conduct of Algarve’s business. Oporto Wines is represented on the board of Algarve, but all of the decisions are made by directors representing the other two companies. How should this investment be classified by the Oporto Wines Group?
An investment
An associate
A joint arrangement
A subsidiary
Based on the facts provided, the Oporto Wines Group should classify its investment in Algarve Beaches Company as an associate. Although Oporto Wines holds only 30% of the voting rights, its representation on the board and the existence of the agreement between the other two companies indicate that it has significant influence over Algarve Beaches Company, but not control. According to the principles in the "企业会计准则第33号——合并财务报表" (ASC 810), when an entity has the ability to significantly influence but not control another entity, the investment should be accounted for using the equity method, classifying it as an associate rather than a subsidiary.
