Under Ind AS 110, PROTECTIVE RIGHTS are:
ARights designed to PROTECT the holder's interest without giving the holder power over relevant activities — they do NOT establish control
BRights to fundamentally change the investee's business model whenever the investor disagrees
CRights to approve major operational and financing decisions on an ongoing basis
DVoting rights held by a parent on a continuing-operations basis
Answer & Solution
Correct answer: A. Rights designed to PROTECT the holder's interest without giving the holder power over relevant activities — they do NOT establish control
Para B26-B28 — protective rights relate to fundamental changes or are exercisable in EXCEPTIONAL circumstances (e.g., approving fundamental restructuring, lender's right to seize assets on default). They do NOT give the holder power over RELEVANT activities (operating/financing decisions on an ongoing basis). Therefore, protective rights cannot create control. Routine board voting rights typically ARE substantive and create power.
Related questions
An investor holds 30% of equity AND is also the asset manager of an investment vehicle. ThMr. X (an individual) holds 100% of Company A. Mr. X is not a corporate entity and does noUnder Ind AS 110, SUBSTANTIVE RIGHTS confer power if the holder has the PRACTICAL ABILITY A Ltd. is the asset manager of Fund X (a venture capital fund). A holds 10% of Fund X's unA Ltd. and B Ltd. set up C Ltd. to build and operate a toll road. A Ltd. constructs (2 yeaFive investors each own 20% of Entity Z and each has one seat on Z's seven-member board. SUnder Ind AS 110, an investor has POWER over an investee through:Under Ind AS 110, an INVESTMENT ENTITY measures most of its subsidiaries at: