[SOLVED] AASB 10.7 ABC must have

CPQ 1.3 Guidance
To have control as defined in AASB 10.7 ABC must have
Power over the investee;
Exposure to variable returns from the investment; and

Copyright By Assignmentchef assignmentchef

An ability to use power over the investee to affect returns.
Given that ABC owns 60% of the shares, it is assumed that ABC controls a majority of the voting rights.
ABC has power over the investee that arises from existing voting rights that give it the current ability to direct the relevant activities (AASB 10.10 and 10.11);
ABC has exposure to variable returns as it owns equity instruments. The returns to ABC (dividends and capital gains) will vary with the economic performance of Investee Ltd.
ABC has been directing the relevant activities of Investee Ltd and hence is able to use its power to effect returns.
Consideration also needs to be given to potential ordinary shares (AASB 10.B47). We need to consider the terms and conditions associated with the options to determine whether the rights are substantive (AASB 10.B23). In this case DEF Ltd owns share options are deeply out of the money and would not be classified as substantive.
Given the above, it is concluded that ABC has control over Investee Ltd.

CS: assignmentchef QQ: 1823890830 Email: [email protected]