Vertical groups

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October 10, 2017 at 4:00 am #410109
nad
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In a vertical group situation the parent controls the sub and by virtue of that control it also controls the sub sub . So in a situation were the sub holds less than 50 percent of the sub sub how should that be accounted for in the group should the group recognise sub sub as a sub or an associate
October 11, 2017 at 10:29 am #410325
P2-D2
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Hi,

You need to look at the overall power to direct the activities and ability to appoint the directors. This can happen, as it does in some of the examples in the class notes, whereby we have an overall effective level of control of less than 50% but still have control.

Imagine if P owns 80% of S and S owns 60% of SS. What it the effective level of control?

It is 48% (80% x 60%) but SS is still consolidated as P controls S and S controls SS.

Thanks

Chris
October 11, 2017 at 2:19 pm #410361
nad
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How would your answer change if H held 80% in S and S held 40% in ssh. Effective control of SS would be 32% so in group ss would be accounted for as an associate . Correct me if I’m wrong
October 15, 2017 at 9:46 am #411064
P2-D2
Keymaster
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If S owns 40% of SS then SS is not a sub-subsidiary as S does not have the power to direct the activities of SS. SS would be treated as an associate of S.

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