Page 21 - PowerPoint Presentation

CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS

Illustration 3

• Does Q Ltd have power over M Ltd?

• Power over M Ltd comes from the voting rights, as these direct the

relevant activities

• The convertible debentures represent potential voting rights, as

they would give Q Ltd further voting rights in M Ltd

• Even though the debentures are slightly out of the money, their

conversion would result in significant synergies and would therefore
still benefit Q Ltd

• Thus, the debentures are substantive, if they are convertible at the
time when decisions regarding relevant activities are made

• Q Ltd considers the debentures to determine that it controls a
majority of the voting rights (65%)

• Therefore, Q Ltd has power over M Ltd

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