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A shareholder of Luna Ltd has come to you confused about something he has seen in the company's 2020 annual report. Under the heading Equity Accounting Information, Luna lists Lara Ltd, a UK-based glass products ?rm, as an investment in which it holds a 58% ownership interest. The shareholder believes that only ownership interests between 20% and 50% should qualify for equity accounting and those investments over 50% must be treated as subsidiaries and consolidated in the ?nancial statements.
Required
Problem 1: Prepare a brief response to the shareholder outlining why Luna could deem it appropriate to carry its 58% investment in Lara Ltd under the equity method of accounting.
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