Theory And Background Flashcards
Group statement: unit 7
What is defined as a group of companies under the Company Act 2008?
A group of companies is defined as a holding company and all its subsidiaries.
what is a Holding Company
A holding company is a juristic person that controls one or more subsidiaries, also referred to as the parent company.
How can a company qualify as a holding company?
A company qualifies as a holding company if it has the ability to control the majority of general voting rights at a general meeting, can appoint directors with majority votes, or has control over issued securities.
Subsidiary
A subsidiary is an entity that is controlled by another entity, typically referred to as the parent company.
Does a holding company need to own shares in another company to establish a subsidiary relationship?
No, a holding company does not need to own shares in another company to establish a subsidiary relationship.
Control
Control is defined as the power to direct the relevant activities of an investee that significantly affect its returns.
What are the elements of control in relation to an investee?
The elements of control include having power over the investee, exposure to variable returns, and the ability to use that power to affect the returns.
Power
Power is the existing rights that provide the ability to direct the relevant activities of an investee.
How is power determined according to IFRS 10?
Power is determined by existing rights, such as voting rights, rights to appoint management, and other decision-making rights.
Variable Returns
Variable returns can be positive, negative, or both, and stem from the involvement of an investor with an investee.
What is the link between power and returns?
The parent must have the ability to use power over the investee to affect its returns while determining whether it acts as a principal or an agent.
Principal
A principal is an investor that has control over an investee and can direct its activities and decisions.
What is a joint venture?
A joint venture occurs when a parent company has joint control over a company due to a contractual arrangement requiring unanimous consent for strategic decisions.
Associate
An associate is a company over which a parent company has significant influence, not control, typically holding between 20% and 50% of voting rights.
How are investments classified based on percentage ownership?
Investments can be classified as subsidiaries, associates, or joint ventures, depending on the percentage of ownership and the level of control.
Non-controlling Interest
Non-controlling interest refers to the interests of owners who do not have a controlling interest in an entity, previously known as minority interest.
What are the characteristics of companies within a group?
Companies in a group are legal entities, separate entities that pay their own taxes, have their own rights and duties, and maintain separate financial statements.
Wholly-owned Subsidiary
A wholly-owned subsidiary is a subsidiary that does not have any members other than the parent and its wholly-owned subsidiaries.
Under what circumstances might a parent not present consolidated financial statements?
A parent may not present consolidated financial statements if it is itself a wholly owned subsidiary, if other owners do not object to non-presentation, or if its equity instruments are not traded publicly.
Consolidated Financial Statements
Consolidated financial statements combine the financials of a parent company and its subsidiaries, reflecting their financial position as a single entity.
What is the significance of IFRS 10 in accounting?
IFRS 10 sets the standards for the consolidation of financial statements, defining control and the criteria for determining which entities must be consolidated.
Fellow Subsidiary
A fellow subsidiary is a subsidiary of the same parent company as another subsidiary, indicating shared ownership.
What is a close corporation in the context of a parent-subsidiary relationship?
A close corporation can be a parent company but cannot have subsidiaries, as its members must be natural persons.
Preference Shares
Preference shares grant their holders preferential rights, including voting rights if dividends are in arrears.
What may prevent the inclusion of a subsidiary in consolidation?
A subsidiary may be excluded from consolidation if control is intended to be temporary or management is actively seeking a buyer.
significant influence
The power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies
