Question

What criteria is used by emirates to distinguish between Subsidiaries, Associates and joint ventures?

Answer 1

Criteria used by the emirates to make difference between Subsidiaries, Associates and Joint Ventures

Basically, IFRS 10 defines a subsidiaries "It is an business which is controlled by the another business". It means the entity who hold is called holding company and to whom controlled is called subsidiaries.

it clearly indicates that the parent company that govern the financial and operating policies of its subsidiaries to gain the benefits from the operation of subsidiaries company

on the other hand joint ventures as per international accounting standard 28 (IAS 28) ,it defines joint venture .A joint venture is a joint arrangement where parties have joint control over the business operation and have right to access the assets of the business , in other words ,it is a joint effort of two or more parties who joint together for some common objective and when the purpose is accomplished parties are segregated.

All the parties have joint controls and in this case partners are called joint co-venture , under this there is a contractual agreement and sharing of control, of all the activities with the consents of other co-venture.

As per international accounting standard 28 (IAS 28) ,it defines associates as '' It is an associate of a business where investor has significant influence over the business''

HERE, SIGNIFICANT INFLUENCE MEANS , the power to participate in the financial and the operating policy decision of the investee but is not controlled or joint controlled of those policies , this significant influence is normally acquired by increasing by purchasing more than 20% of the voting power but less than 50%.

The basic difference between subsidiary and joint venture is that under subsidiary a single business may establish and fully or partially controlled by the parent company but under joint venture it is formed by an agreement between the co-venture of two or more for some specific objective to be fulfilled and when the purpose is complete all co-ventures are scattered.

A joint venture is similar to partnership where several companies and individuals enter into contractual agreement and contribute capital as per the consent to form the business but subsidiaries are seprate business entity from parent company but parent company have some sort of control over the subsidiary company.

The key difference between subsidiary and associate is that while subsidiary is a country where parent company have partial or full control. And parent company is majority shareholder , parent hold a minority position in an associate , another difference is percentage of ownership and the degree of control or influence of parent company.

Under the subsidiary control can be gained if more than 50%of the voting rights are acquired by the parent company, but under the joint venture controlling and decision making are made by all the co-venture with the consent of each other whereas , in associate significant influence is acquired by purchasing more than 20% of the voting power but less than the 50%