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Dear Mike
Hello, sir.
Hopefully u had nice lunch.Cut to the chase,
The question is “Which of the following r likely to be accounted for as an associate in the parentTN”1. A 25% shareholding in ZT. TN can appoint a director to the board. There r 4 directors on the board in total, and none has control.
(I think the parent is capable of appointing directors, so i consider this as a subsidiary.) But the answersheet no…
2. A 25% shareholding in ZU. ZU is 70% owned by a company called TU.
( i reckon this is an associate cuz the parent owns only 25% and can’t control, but the answer sheet states that ZU is likely to be regarded as a financial asset,as TN has no significant influence)Sir i don’t understand “considering it as a financial asset” they said TN has no significant influence….so it means an associate doesn’t it?. But why the answer is 1?
Sorry I’m sure it’s silly question but…
My eyes already popped out cuz of fatigues. Feeling like Two flaming meatballs are in my skull.Help me Sir
Regard
Your student Han.“1. A 25% shareholding in ZT. TN can appoint a director to the board. There r 4 directors on the board in total, and none has control.
(I think the parent is capable of appointing directors, so i consider this as a subsidiary.) But the answersheet no…”
The parent is NOT capable of appointing directorS – it can appoint only one and the question tells you that no director has control. If the parent had the ability to appoint a majority of the directors … then it would have been a subsidiary
But it doesn’t have that authority. However, a 25% holding does suggest a significant influence – so long as no other member has a controlling interest
“2. A 25% shareholding in ZU. ZU is 70% owned by a company called TU.
( i reckon this is an associate cuz the parent owns only 25% and can’t control, but the answer sheet states that ZU is likely to be regarded as a financial asset,as TN has no significant influence)”Imagine that you hold an investment in an entity – you own 49.9% of the shares. That seems to be a pretty significant holding conferring a significant influence
But the other 50.1% of the shares are held by just one other shareholder. Your significant influence has now evaporated! No matter what you suggest or consider to be a good move for this investee to take – the 50.1% shareholder can tell you exactly where to go and what to do when you get there. This 50.1% holder has TOTAL control and you…? You have no influence at all, let alone a significant interest
So it’s a financial instrument asset and not an associate
OK?
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