Chapter 10 - Vertical Complex Groups

Question 1

Complex Groups

Answer 1

Where a parent company indirectly invests in another company through a subsidiary

Question 2

Control

Answer 2

Parent has some influence or control in an Investment made by its subsidiary

Question 3

Sub-subsidiary

Answer 3

Subsidiary of another subsidiary

Question 4

Vertical Group

Answer 4

Where there is clear control from the parent to subsidiary to sub-subsidiary

Question 5

Mixed Groups

Answer 5

Parent group directly owns shares in a sub-subsidiary which is also controlled by the subsidiary

Question 6

Indirect Associate

Answer 6

Subsidiary’s Investment does not give overall control, yet allows significant influence

Question 7

Vertical Group

Answer 7

Parent [>50% - control]&raquo_space;
Subsidiary [>50% - Control]
»
Sub-subsidiary

Question 8

Mixed Group

Answer 8

Parent [>50% - control] >> 
Subsidiary [>50% - Control] 
>> 
Sub-subsidiary
>>
Parent [1% - 50% - control in sub-subsidiary]

Question 9

Indirect Associate

Answer 9

Parent [>50% - control]&raquo_space;
Subsidiary [20%-50% - Influence]
»
Sub-Associate

Question 10

Effective Ownership Percentage

Answer 10

Multiply the parent’s share of its subsidiary with its subsidiary’s share of the sub-subsidiary

Question 11

Accounting for Sub-subsidiary

Answer 11

So long as control is achieved by the ultimate parent the sub-subsidiary will be consolidated as if it were an ordinary subsidiary

Question 12

Accounting for sub-Associate

Answer 12

Indirect Associate is accounted for using the equity method

Question 13

Consolidation of Vertical Groups

Answer 13

As subsidiary is indirectly controlled by the ultimate parent, sub-subsidiary will be consolidated into the group

Question 14

Group Structure

Answer 14

Control
Percentage Ownership
Date of Acquisition

Question 15

Effective Ownership

Answer 15

P owns 80% of S
S owns 75% of Q

80% x 75% = 60%

P indirectly controls Q

Question 16

Non-Controlling Interest

Answer 16

P owns 80% of S
S owns 75% of Q

Non-controlling interest in S = 20%
Non-controlling interest in Q = 40%

Question 17

Date of acquisition

Answer 17

Effective date of acquisition of the sub-subsidiary is the date the direct sub-subsidiary is acquired

Question 18

Single Stage Acquisition

Answer 18

Parent acquires pre-existing group

Effective date: date of acquiring direct subsidiary or pre-existing group

Question 19

Two-stage Acquisition

Answer 19

Parent acquires subsidiary and then subsidiary acquires sub-subsidiary

Effective date: consolidation is done on the individual acquisition dates

Question 20

Points to note on complex groups

Answer 20

> Non-controlling interest in a sub-Subsidiary
Effective Date of Acquisition of Sub-Subsidiary
Goodwill on Consolidation of Sub-Subsidiary
intra-Group Investment and Investment Income in non-controlling interest