Question

Which of the following statements is NOT correct under Australian AASB Accounting Standards in the context of consolidation?

Select one:

Control that is joint control does not satisfy the definition of control under accounting standards in respect of consolidated group formation.

It is possible to control another company by means of economic pressure alone.

Control is effectively the power to govern the operating policies of an entity most of the time to obtain benefits from its activities.

Control could be obtained over a public listed company by obtaining 19 per cent of its voting shares.

Answer 1

Second statement is not correct in context of consolidation I have read all AASB 10 regarding same.

In this statement it is said that one entity is controlling through economic pressure alone. If your read the defination of control cleary you get to know that there is no mentioning about econmic pressure. All is return is controlling an entit thorough its power. Now this power can be obtained by share, any contract, voting right etc. So this statement is wrong

Now talk about other 3 points too

1) in standar 10 it is written that there might be condition where one entity can be controlled by two owner so this statement is correct

3) as per paragraph no. 15 of AASB 10 "An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor’s returns from its involvement have the potential to vary as a result of the investee’s performance. The investor’s returns can be only positive, only negative or both positive and negative. " this paragraph cofirm that this stateemnt is correct

4) Control on entity can be obtained by holding shares. but in this cases entity hold 19% of share we have to identify that this entity is interfaring in decision making process or not if yes then it is called as controlling entity.

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