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Associate and Fellow Subsidiary

Sehar Shivani (Executive) (57 Points)

11 May 2011

Hi,

Can someone please explain :

1. Fellow Subsidiary

2. Associate

Case Study : Assume, 5 companies : A,B,C,D,E

B is a 100 % subsidiary of A and A holds 85% shares in C and 50% shares in D.

E, in turn, is a 100% subsidiary of B

Whats the relation between : 1. B & C , 2. B & D, C &D, E & C and E & D

Please explain.

Thank You

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5 Replies

udit sharma (Company Secretary) (2303 Points)
Replied 11 May 2011

1. B&C are fellow subsidiaries of A.

2.No relation between B and D. B is a wholly owned subsidiary of A and D is an associate of A.

3. C& D: No relation. C is a subsidiary of A and D is an associate of A, provided D is not a joint venture.

4.E&C are fellow subsidiaries of A. E is an Indirect/ Step down wholly owned subsidiary of A and C is a direct subsidiary of A.

5.No relation between E and D.

udit sharma (Company Secretary) (2303 Points)
Replied 11 May 2011

The term 'Associate' has not been defined in the Companies Act, 1956. However, as per Accounting Standard 23 - Accounting for investment in Associates for consolodated financial statements', the term'Associate' means an enterprise in which the reporting Company has signiifcant influence but which is neither its subsidiary of joint venture'. Significant influence means the right to participate in financial/operating policy decisions but not the right to control such policies.

So in my opinion, since A holds 50% of equity interest in D and if D is not a joint venture, and the remaining 50% of equity interest is widely scattered, then it can be said that A exercises significant influence over D.

As per Accounting Standard 27, Joint Venture means a contractual arrangement between two parties to undertake a common economic activity which will be subject to joint control.

God Bless

CS Udit Sharma

1 Like

Sehar Shivani (Executive) (57 Points)
Replied 11 May 2011

Thank You Udit. Really Appreciate your help :) God Bless you too !

Viren (Chartered Accountant) (137 Points)
Replied 11 May 2011

Originally posted by : udit sharma
	The term 'Associate' has not been defined in the Companies Act, 1956. However, as per Accounting Standard 23 - Accounting for investment in Associates for consolodated financial statements', the term'Associate' means an enterprise in which the reporting Company has signiifcant influence but which is neither its subsidiary of joint venture'. Significant influence means the right to participate in financial/operating policy decisions but not the right to control such policies. So in my opinion, since A holds 50% of equity interest in D and if D is not a joint venture, and the remaining 50% of equity interest is widely scattered, then it can be said that A exercises significant influence over D. As per Accounting Standard 27, Joint Venture means a contractual arrangement between two parties to undertake a common economic activity which will be subject to joint control. God Bless CS Udit Sharma