Page 265 - SBR Integrated Workbook STUDENT S18-J19
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Group accounting – Basic groups
Example 3
Control
Cloud is a public limited company. Its sole operating activity is to invest in
other businesses for the purpose of capital appreciation. During the period,
Slade purchased 47% of the equity shares in Cloud. The next biggest
shareholder owns 6% of the equity shares. Cloud has no potential voting
rights in issue. Attendance at Cloud’s annual general meetings over the past
five years has averaged 77%.
Decisions around the day-to-day management of investments, as well as
decisions to buy or sell equity interests, are taken by Cloud’s management
and its board of directors and do not require approval at the annual general
meeting. Slade has appointed one of the five members of Cloud’s board of
directors. Legal limitations in Cloud’s jurisdiction prevent Slade from taking a
majority position on the board.
The directors have concluded that Slade does not control Cloud.
Discuss whether the directors’ conclusion is correct.
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