Page 20 - PowerPoint Presentation

CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS

Illustration 2

• P Ltd owns 45% of the shares of S Ltd. P Ltd can appoint or

remove four of the six directors on the board of S Ltd. Each

director is entitled to one vote at the directors’ meeting. The

decisions made at the directors’ meetings direct the relevant
activities of S Ltd.

• Approach:

• P Ltd currently holds the majority of the voting rights (4/6 =66,6%) at

the directors’ meeting. These rights give P Ltd the current ability to
use its majority vote at the directors’ meeting 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
directors’ meeting 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.

20

20