Page 19 - Finac2 Test 1 Slides - 1. Consolidated And Separate Financial Statements

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.

19