Page 19 - 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.

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