Question

(8 marks Question 5 The following table shows factors to be considered when determining whether a parent-subsidiary relationship exists. Factor А B C Description Significant influence Control Non-controlling interest Greater than 50% of the equity shares being held by an investor 100% of the equity shares being held by an investor Greater than 50% of the preference shares being held by an investor 50% of all shares and all debt being held by an investor G

Answer 1

Answers:

B. Control

When a company controls another company, there exists the parent - subsidiary relationship. A company gets control in another company when they purchases a controlling amount of voting stock in another one. So when a company controls more than half of another company, the parent holds controlling interest in subsidiary. So that controlling interest defines the percentage of control of parent company over the subsidiary.

C. Non-controlling interest

Explanation : A non-controlling interest means that there is an ownership where the shareholder owns less than 50% of the outstanding shares. It is the portion of equity ownership in a subsidiary firm which is not attributable to the parent company, who has a controlling interest may be greater than 50% ownership. So when there is a non-controlling interest, it must mean that there is a controlling interest too and hence a parent-subsidiary relationship exists.

D. Greater than 50% of the equity shares being held by an investor

The ownership of more than 50% of equity stock creates a parent - subsidiary existence. When the outstanding common stock purchased is 50% or more, the purchasing company usually has control over the acquired company. Here, relationship the acquiring company is the parent company and the acquired company is the subsidiary.

E. 100% of the equity shares being held by an investor

Equity shares are ordinary shares which gives the ownership in the firm. So 100% ownership means there is 100% control in the subsidiary firm. It means all the controlling rights will be with Parent company only.