Question

Purnama Bhd acquired 45% of the ordinary shares of Bulan Bhd on 1 January 2016. The remaining shares are held by Bintang Bhd and Matahari Bhd ,each holding 25% and 30% of the ordinary shares of Bulan Bhd respectively. Starting from 1 January 2016, it has been agreed that the key management of Purnama Bhd will direct the relevant activities of Bula Bhd which include approving any kind of transactions related to sales and purchases of goods as well as other transactions related to the assets and liabilities of Bulan Bhd.

Required:

Advise whether Purnama Bhd has control over Bulan Bhd in accordance with MFRS 10 Consolidated Financial Statements.

Answer 1

Sol :

Normally control is obtained when Investor acquired morethan 50% of shares acquired in investee company.But also invetor controls investee if satisefies the following elements.,

An Investor controls an investee if and only if investor has the power over an investee i.e.,Investor has existing right which gives current ability to direct the relevant activities any operating and financing activities activities that significantly affect Investees Return.

In the present case Purnana Ltd directs the relevant activities of purchase and sale of goods.So it can be said that the Purnama Ltd controls Bulan Bhd.

And alos if Investor has shareholding which gives obsolute voting right even if holding is lessthan 50% of voting right and relative size of shareholde of other investor are very small and such shareholders are not active in participation on Relevant activities then it will be considered that Investor has defacto power over Investee.