Consolidation of associates

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

20 October 2016 How to consolidate accounts if a company A holds more than 20% preference shares of company B .? No equity shares are held by company A of company B.

CA Nitesh

CA Nitesh (Expert)
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20 October 2016 In the above case Company A holds more than 20% of preference share capital of B Limited, Thus B is a associate of A as per Companies Act but as per AS 23 B will be treated as associate only if A has substantial influnce over B, defination of significant influnce as defined is AS 23 says that A must have power to participate in the financial and/
or operating policy decisions of the investee but not control over those policies. It is to be noted prefernce share holders does not have power to vote on company resolution. Thus by holding prefernce shares A cannot be said to have significant influence over B. Moreover AS 23 talks about only equity method thus A should not consolidate B as associate however the said Note of fact must be disclosed in financial statements.

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