Financial Reporting Ind as
This query is : Resolved
06 January 2020
if a co holds 70% share of B ltd but no control on such co by entering into contract then it will be called subsidiary or not
06 January 2020
As per Ind As-110, there must be control for Parent-Subsidiary relationship
There Will be control
"If the investor is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns
through its power over the investee."
As mentioned we have three major criteria to define control:
1.) Power over the investee,
2.)Exposure, or rights, to variable returns from its involvement with the
investee; and
3.)The ability to use its power over the investee to affect the amount of
the investor’s returns
Conclusion:
Holding 70% interest in the company provide voting power of 70%, it means the investor can significantly influence control over the investee then there will be Parent-Subsidiary relationship.
However even if holding 70% , and does not have any voting right or unable to take the decision on significant economic activities or does not fulfil the criteria of control mentioned above then it will be classified as Investment and dealt accordingly.
There Will be control
"If the investor is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns
through its power over the investee."
As mentioned we have three major criteria to define control:
1.) Power over the investee,
2.)Exposure, or rights, to variable returns from its involvement with the
investee; and
3.)The ability to use its power over the investee to affect the amount of
the investor’s returns
Conclusion:
Holding 70% interest in the company provide voting power of 70%, it means the investor can significantly influence control over the investee then there will be Parent-Subsidiary relationship.
However even if holding 70% , and does not have any voting right or unable to take the decision on significant economic activities or does not fulfil the criteria of control mentioned above then it will be classified as Investment and dealt accordingly.
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