The investment should be classified as an associate. According to International Accounting Standard (IAS) 28, significant influence is the power to participate in the financial and operating policy decisions of an investee, but not control or jointly control those policies. A holding of 20% or more of the voting power gives rise to a presumption of significant influence. GH holds 25% (3,000,000 / 12,000,000) of the shares and is explicitly stated to have the power to participate in policy decisions without having control. This directly meets the definition of an associate, which must be accounted for using the equity method.

B. Joint venture: This requires joint control established through a contractual agreement between parties to share control, which is not indicated in the scenario.

C. Joint arrangement: This is a broader term that also requires contractually agreed joint control, which is absent from the provided information.

D. Financial asset: This classification applies when an investor lacks significant influence. GH's 25% holding and participation power clearly demonstrate significant influence, making this classification inappropriate.

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1. International Accounting Standards Board (IASB). (2011). International Accounting Standard 28: Investments in Associates and Joint Ventures.

Paragraph 3: Defines an 'associate' as "an entity over which the investor has significant influence" and 'significant influence' as "the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies."

Paragraph 5: Establishes the presumption of significant influence: "If an entity holds

directly or indirectly... 20 per cent or more of the voting power of the investee

it is presumed that the entity has significant influence

unless it can be clearly demonstrated that this is not the case."

2. International Accounting Standards Board (IASB). (2011). International Financial Reporting Standard 11: Joint Arrangements.

Appendix A: Defines 'joint control' as "The contractually agreed sharing of control of an arrangement

which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control." This supports why options B and C are incorrect as no contractual agreement is mentioned.

3. PwC. (2023). IFRS Manual of Accounting - Chapter 23: Investments in associates and joint ventures (IAS 28).

Section 23.7: "An investment of 20% or more of the voting power (that is

the right to vote) leads to a presumption of significant influence. The presumption can be rebutted if there is clear evidence to the contrary." This source corroborates the application of the 20% threshold from IAS 28.