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Hi Sir,
In BPP Q5 (d), why doesn’t the option to acquire 35% of the voting rights give Marley control over Cratchett? I don’t understand why the fixed price of the shares matters here.
Thank you!
I don’t have the Q. Please could you summarise and I’ll get back to you. (Try not to copy and paste the whole Q. ) 🙂
Thank you Stephen. Here’s a summary of the question:
“Cratchett’s voting rights belong to Scrooge (70%) and Marley (30%). Marley has an option to buy 35% voting rights from Scrooge, exercisable for the next 2 years and at a fixed price that is deeply out of the money. The price is expected to remain so for that 2-year period.
Explain if S or M should consolidate C under IFRS 10.”
Out the money = exercise price $10; current share price $20.
Therefore unlikely to exercise option and obtain control.
Therefore Marley would not treat C as a subsidiary.
🙂
Sorry for asking. If Marley can use the option to buy shares at a cheaper price ($10), why is it unlikely to exercise the option?
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