ACCA FA · Chapter 13 · Question 12 of 12
P owns 45% of the voting shares of Q. Under an agreement with the other shareholders, P has the right to appoint or remove a majority of Q's board of directors. How should Q be treated in P's group financial statements?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) As a subsidiary, because P controls Q
Explanation
Control does not depend solely on owning more than half of the shares. The right to appoint or remove a majority of the board gives P power over Q's relevant activities, so P controls Q, and Q must be consolidated as a subsidiary.
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