Theory And Background

Question 1

What is defined as a group of companies under the Company Act 2008?

Answer 1

A group of companies is defined as a holding company and all its subsidiaries.

Question 2

what is a Holding Company

Answer 2

A holding company is a juristic person that controls one or more subsidiaries, also referred to as the parent company.

Question 3

How can a company qualify as a holding company?

Answer 3

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.

Question 4

Subsidiary

Answer 4

A subsidiary is an entity that is controlled by another entity, typically referred to as the parent company.

Question 5

Does a holding company need to own shares in another company to establish a subsidiary relationship?

Answer 5

No, a holding company does not need to own shares in another company to establish a subsidiary relationship.

Question 6

Control

Answer 6

Control is defined as the power to direct the relevant activities of an investee that significantly affect its returns.

Question 7

What are the elements of control in relation to an investee?

Answer 7

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.

Question 8

Power

Answer 8

Power is the existing rights that provide the ability to direct the relevant activities of an investee.

Question 9

How is power determined according to IFRS 10?

Answer 9

Power is determined by existing rights, such as voting rights, rights to appoint management, and other decision-making rights.

Question 10

Variable Returns

Answer 10

Variable returns can be positive, negative, or both, and stem from the involvement of an investor with an investee.

Question 11

What is the link between power and returns?

Answer 11

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.

Question 12

Principal

Answer 12

A principal is an investor that has control over an investee and can direct its activities and decisions.

Question 13

What is a joint venture?

Answer 13

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.

Question 14

Associate

Answer 14

An associate is a company over which a parent company has significant influence, not control, typically holding between 20% and 50% of voting rights.

Question 15

How are investments classified based on percentage ownership?

Answer 15

Investments can be classified as subsidiaries, associates, or joint ventures, depending on the percentage of ownership and the level of control.

Question 16

Non-controlling Interest

Answer 16

Non-controlling interest refers to the interests of owners who do not have a controlling interest in an entity, previously known as minority interest.

Question 17

What are the characteristics of companies within a group?

Answer 17

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.

Question 18

Wholly-owned Subsidiary

Answer 18

A wholly-owned subsidiary is a subsidiary that does not have any members other than the parent and its wholly-owned subsidiaries.

Question 19

Under what circumstances might a parent not present consolidated financial statements?

Answer 19

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.

Question 20

Consolidated Financial Statements

Answer 20

Consolidated financial statements combine the financials of a parent company and its subsidiaries, reflecting their financial position as a single entity.

Question 21

What is the significance of IFRS 10 in accounting?

Answer 21

IFRS 10 sets the standards for the consolidation of financial statements, defining control and the criteria for determining which entities must be consolidated.

Question 22

Fellow Subsidiary

Answer 22

A fellow subsidiary is a subsidiary of the same parent company as another subsidiary, indicating shared ownership.

Question 23

What is a close corporation in the context of a parent-subsidiary relationship?

Answer 23

A close corporation can be a parent company but cannot have subsidiaries, as its members must be natural persons.

Question 24

Preference Shares

Answer 24

Preference shares grant their holders preferential rights, including voting rights if dividends are in arrears.

Question 25

What may prevent the inclusion of a subsidiary in consolidation?

Answer 25

A subsidiary may be excluded from consolidation if control is intended to be temporary or management is actively seeking a buyer.

Question 26

significant influence

Answer 26

The power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies