Question

The accounting for equity investments is one of the hot topics in finance and accounting because it can have significant consequences on the profitability and the financial position of companies. The debate covers several accounting aspects including the substance vs. form dilemma.
Normally the accounting method for an equity investment depends on the level of influence achieved by one company when investing in another company. For example, a company that achieves control over another company is required to consolidate its financial statements with those of the investee. The accounting standards normally define specific quantitative cut-off ranges of ownership percentages to guide the assessment of influence. The standards also use additional qualitative criteria to help assess influence.  

Required:
1. Explain the concept of control and its relationship to ownership percentage.
2. Which criteria do you prefer to use to classify equity investments (quantitative, qualitative, or a combination of both)? Explain your answer (you may wish to highlight the advantages and disadvantages of each one)

Answer 1

1). A conrolling concept is when shareholder or a group of shareholders acting in kind, holds majority of of companies voting stock. controlling intrest gives a shareholder significant inluence over the action of a company.

The relation of ownership with controlling is propotionately substantial relative control/ voting to total voting control.A single shareholder having 5% or 10% ownership is considerable for vacant a seat in meeting of company.

any company having significant shares in other company, can influence other companies decision making, meetings, strategies etc.

Shareholders owenrship does not imply control since the company law specifies that only majority percentage of shareholders can exercise control as may be prescribed. More majority of share=More control over company.

for example:- alphabet inc. holding 60% majority shares in company B. every share having 10 votes per share

2). QUANTITATIVE INVESTMENT:- these investors bother only the monetary values of shares, companies historical value of shares, fundamental analysis of shares, future forcasting of share value, dividenf value etc. They do not thought about the companies performance, do not intract with existing shareholders etc. It has an advantage that there is chances that investor can get more revenue and capital profit but disadvantage of not knowing the companies going concern estimation

QUALITATIVE INVESTMENT:- according to these types of investors, balance sheet, profit and loss account and other financial statements are of more value. They keep checking the performace of the company, companies competitive advantage, companies future objectives. they also get consulted with companies management's, registrar's, existing shareholder's about companies internal matters befor buying share. the advantage and disadvange of this is opposite of qualitative investments.

COMBINATION:- of both qualitative and quantitative investments make the investors to get more knowlegde before buying.

according to my opinion combination of both is a best approach for an investor.