Page 18 - Topic 1 - 1. Consolidated & Separate Financial Statement

CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS
Illustration 1

• P Ltd owns 55% of the shares of S Ltd. Each share entitles

the holder to one vote at the annual general meeting

(AGM). The decisions made at the AGM direct the relevant

activities of S Ltd.

• Approach:

• P Ltd currently holds the majority of the voting rights (55%) at the

AGM. These rights give P Ltd the current ability to use its majority

vote at the AGM to direct the relevant activities of S Ltd. P Ltd
therefore has power over S Ltd.

• P Ltd is exposed to variable returns from S Ltd through dividends
and the value of its investment in S Ltd.

• P Ltd has the ability to use its majority voting rights (power) at the
AGM to affect its returns (through dividend policies, operating

decisions, etc.).

• P Ltd has control over S Ltd and S Ltd is a subsidiary of P Ltd.

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