Support Ltd's Investment in Always There: Classification and Accounting Treatment

(a) In relation to the Support Ltd investment in Always There, the most appropriate classification in the consolidated financial statements would be as an equity investment classified as 'Investments in Associates' under AASB 128 'Investments in Associates and Joint Ventures'. This is because Support Ltd has significant influence over Always There's operating and financial policies through its representation on the Board of Directors and its ability to appoint and remove members.

AASB 128 defines significant influence as 'the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.' The fact that Support Ltd has the right to appoint and remove four members of Always There's Board of Directors, as well as the ability to make strategic decisions such as pursuing government grant funding and cash support from lucrative international climate change initiatives, indicates that Support Ltd has significant influence over Always There's operations.

Furthermore, Always There is considered a not-for-profit entity, which would fall under the definition of an associate. Appendix A of AASB 128 states that 'an associate is an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.'

One additional piece of information that would further develop Support Ltd's argument for classifying the investment as an associate is the length of time that Support Ltd has been involved with Always There. If Support Ltd has been involved with Always There for a significant period of time, this may indicate that Support Ltd has a long-standing significant influence over Always There's operations, further supporting the classification as an associate.

(b) The subsequent accounting treatment of the investment in Always There in Support Ltd's consolidated financial statements would involve the application of the equity method of accounting. Under the equity method, the investment in Always There would initially be recorded at cost, being the consideration paid for the shares. Subsequently, Support Ltd's share of Always There's post-acquisition profits or losses would be recognised in the consolidated statement of comprehensive income.

As a supporting example, the impact on two specific account balances in Support Ltd's consolidated financial statements at 30 June 2023 would be:

• Investments in Associates: The carrying amount of the investment in Always There would be adjusted for Support Ltd's share of Always There's post-acquisition profits or losses. If Always There reports a profit for the year ended 30 June 2023, Support Ltd would recognise its share of the profit in the consolidated statement of comprehensive income and increase the carrying amount of the investment in Always There in the consolidated statement of financial position. Conversely, if Always There reports a loss for the year ended 30 June 2023, Support Ltd would recognise its share of the loss in the consolidated statement of comprehensive income and decrease the carrying amount of the investment in Always There in the consolidated statement of financial position.

• Income Tax Expense: If Always There reports a profit for the year ended 30 June 2023, Support Ltd would recognise its share of the profit in the consolidated statement of comprehensive income and accordingly, would be required to recognise its share of the income tax expense in the consolidated statement of comprehensive income. This would result in an increase in the income tax expense in the consolidated statement of comprehensive income. Conversely, if Always There reports a loss for the year ended 30 June 2023, Support Ltd would recognise its share of the loss in the consolidated statement of comprehensive income and reduce the income tax expense accordingly.