Question 1 - written

Question 1

What is Control?

Answer 1

• A parent company controls a subsidiary when it owns more than 50% of the ordinary shares (voting rights).
• According to FRS 10, control exists when the parent has:
  1.Power over the investee (can direct activities),
  2. Exposure to variable returns (e.g. profit, dividends), and
  3. The ability to use its power to affect those returns.

Question 2

What is a Group Relationship?

Answer 2

• A group is formed when a parent controls one or more subsidiaries.
• Each company in the group remains a separate legal entity and prepares its own financial statements.
• The parent also prepares consolidated financial statements to reflect the single entity concept – showing the group as if it were one company trading with the external world.

Question 3

Types of Acquisition

Answer 3

• Control is typically gained through the purchase of shares.
• When this happens:
  1. The parent records an investment in its own Statement of Financial Position.

2. The subsidiary continues to operate independently, but is now under the parent’s control.