Question 7. Which of the following should be accounted for as subsidiaries in the consolidated financial...

Question 7. Which of the following should be accounted for as subsidiaries in the consolidated financial statements of Seabass Co?

Seabass Co owns 45% of Cod Co, but has a majority of seats on the Board which gives Seabass Co power over Cod Co
Seabass Co owns 60% of Haddock Co, and has 49% of the voting rights. The remaining 51% of the voting rights are controlled by a single shareholder.
Seabass Co owns 80% of the preference share capital of Sole Co which carry no voting rights

Cod Co, Haddock Co and Sole Co

Haddock Co and Sole Co only

Cod Co only

Haddock Co only

Solutions

Expert Solution

Answer is (c) Cod Co only.

As per IFRS 10, A company will be a holding co. to another entity if it has control over that other entity.

Case 1 - Cod co: Even though Seabass Co holds 45% of Cod co, it has majority of seats on the board which gives it control over relevant activities and therefore Seabass Co controls Cod Co.

Case 2 - Haddock Co: In this case, even though Seabass Co owns 60% of Haddock Co, it has 49% of voting rights and the remaining 51% is in the hands of a single shareholder who can direct and control the relevant activities through that. Therefore Seabass Co doesnot control Haddock Co.

Case 3 Sole Co: As preference shares carry no voting rights, Seabass Co doesnot control Sole Co.

Thus from above, it is evident that Seabass Co controls only Cod Co . Therefore, it will be accounted for as subsidiaries in the consolidated financial statements of Seabass Co.

Please feel free to ask any queries and do give a thumbsup if the solution was satisfactory. Thankyou.

ekkarill92 answered 1 year ago

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