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Under Ind AS 110, SUBSTANTIVE RIGHTS confer power if the holder has the PRACTICAL ABILITY to exercise them. Factors that may PREVENT a right from being substantive include all of the following EXCEPT:
AFinancial penalties or incentives that prevent exercise
BThe holder of the rights is the largest single shareholder of the investee
COperational barriers like absence of replacement managers willing to step in
DHigh exercise or conversion price (deep out of the money for the holder)
Answer & Solution
Correct answer: B. The holder of the rights is the largest single shareholder of the investee
Para B22-B25 — substantive-rights barriers include: financial penalties, deep out-of-the-money options, narrow exercise windows, lack of mechanism to exercise collectively, holder's inability to obtain information, operational barriers (no replacement service providers), legal/regulatory prohibitions. Being the LARGEST shareholder doesn't make rights non-substantive — it's actually a strong indicator they ARE substantive.
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