Why is this false? IAS 27 associates

topcattopcat Trusted RegularPosts: 452Registered
Ouse plc own 45% of the voting rights of Avon Ltd. Is exposed to variable returns from its involvement with Avon Ltd and has the ability to affect those returns through its power over Avon Ltd. In relation to our plc avon is an associate true or false?

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  • KernowAccountantKernowAccountant Settling In Nicely Posts: 120Registered
    topcat wrote: »
    Ouse plc own 45% of the voting rights of Avon Ltd. Is exposed to variable returns from its involvement with Avon Ltd and has the ability to affect those returns through its power over Avon Ltd. In relation to our plc avon is an associate true or false?
    Avon Ltd is a subsidiary of Ouse Plc; not an associate. Although we have the 50% benchmark for identifying a subsidiary (and 20%-50% for an associate) it is necessary to look at whether one entity CONTROLS another - if control exists then so too does a subsidiary. IFRS 10 (Consolidated Financial Statements) states that an investor controls an investee if and only if it has all of the following: i) Power over the investee ii) Exposure, or rights, to variable returns from its involvement with the investee, and iii) The ability to use its power over the investee to affect the amount of investor's returns. Sorry for the block of text, as ever this blasted forum isn't allowing formatting!!
  • topcattopcat Trusted Regular Posts: 452Registered
    Avon Ltd is a subsidiary of Ouse Plc; not an associate. Although we have the 50% benchmark for identifying a subsidiary (and 20%-50% for an associate) it is necessary to look at whether one entity CONTROLS another - if control exists then so too does a subsidiary. IFRS 10 (Consolidated Financial Statements) states that an investor controls an investee if and only if it has all of the following: i) Power over the investee ii) Exposure, or rights, to variable returns from its involvement with the investee, and iii) The ability to use its power over the investee to affect the amount of investor's returns. Sorry for the block of text, as ever this blasted forum isn't allowing formatting!!
    Thank you very much, I thought it was an associate if it was below 50%.i shall look out for those factors now :-)
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