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subsidiary

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by

Sifan Gu

on 29 August 2013

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Transcript of subsidiary

subsidiary
An entity, including an unincorporated entity such as a partnership, that is controlled by another entity (known as the parent) .

Control
7 Thus, an investor controls an investee if and only if the investor has all the following:

(a) power over the investee (see paragraphs 10–14);

(b) exposure, or rights, to variable returns from its involvement with the investee (see paragraphs 15 and 16); and

(c) the ability to use its power over the investee to affect the amount of the investor’s returns (see paragraphs 17 and 18).
Paragraph 10
10 An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, ie the activities that significantly affect the investee’s returns.
B18
In some circumstances it may be difficult to determine whether an investor’s rights are sufficient to give it power over an investee. In such cases, to enable the assessment of power to be made, the investor shall consider evidence of whether it has the practical ability to direct the relevant activities unilaterally. Consideration is given, but is not limited, to the following, which, when considered together with its rights and the indicators in paragraphs B19 and B20, may provide evidence that the investor’s rights are sufficient to give it power over the investee:

(a) The investor can, without having the contractual right to do so, appoint or approve the investee’s key management personnel who have the ability to direct the relevant activities [Unknown]
(b) The investor can, without having the contractual right to do so, direct the investee to enter into, or can veto any changes to, significant transactions for the benefit of the investor. [Unknown]
(c) The investor can dominate either the nominations process for electing members of the investee’s governing body or the obtaining of proxies from other holders of voting rights. [Tick] (with over 70% eligible voting rights)
(d) The investee’s key management personnel are related parties of the investor (for example, the chief executive officer of the investee and the chief executive officer of the investor are the same person). [Tick] (3 of 5)
(e) The majority of the members of the investee’s governing body are related parties of the investor. [Unknown]
B35
An investor that holds more than half of the voting rights of an investee has power in the following situations, unless paragraph B36 or paragraph B37 applies:

(a) the relevant activities are directed by a vote of the holder of the majority of the voting rights, or
(b) a majority of the members of the governing body that directs the relevant activities are appointed by a vote of the holder of the majority of the voting rights.
B38
An investor can have power even if it holds less than a majority of the voting rights of an investee. An investor can have power with less than a majority of the voting rights of an investee, for example, through:

(a) a contractual arrangement between the investor and other vote holders (see paragraph B39);
(b) rights arising from other contractual arrangements (see paragraph B40);
(c) the investor’s voting rights (see paragraphs B41–B45);
(d) potential voting rights (see paragraphs B47–B50);
(e) a combination of (a)–(d).
Since Romeo have 3 out of 5 directors of Juliet,
Romeo has power over Juliet
Background
Shares
Directors
Voting power
65%
(UNKNOWN)
(UNKNOWN)
Romeo 35% voting rights
with 70%+ voting rights when joint with Lady Caprlet)
Conclusion
Romeo have power over Juliet
An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor’s returns from its involvement have the potential to vary as a result of the investee’s performance. The investor’s returns can be only positive, only negative or both positive and negative.
Paragraph 15
Control (2) [Tick]
Control (1) [Tick]
Paragraph 17
An investor controls an investee if the investor not only has power over the investee and exposure or rights to variable returns from its involvement with the investee, but also has the ability to use its power to affect the investor’s returns from its involvement with the investee.
Control (3) [Tick]
3 out of 5
Control
7 Thus, an investor controls an investee if and only if the investor has all the following:

(a) power over the investee

(b) exposure, or rights, to variable returns from its involvement with the investee

(c) the ability to use its power over the investee to affect the amount of the investor’s returns
[Tick]
[Tick]
[Tick]
Conclusion
Juliet Ltd should be regarded as a subsidiary in Romeo Ltd’s consolidated financial reports in accordance with AASB10.
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