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Under Ind AS 110, when assessing whether an investor's REMUNERATION makes it a principal vs an agent, the key question is whether:
AThe remuneration is paid in cash rather than in kind
BThe remuneration creates exposure to variability of returns of such significance that the decision maker is acting primarily for its own benefit
CThe remuneration exceeds 2% of the investee's net asset value
DThe remuneration is determined by board approval rather than by formula
Answer & Solution
Correct answer: B. The remuneration creates exposure to variability of returns of such significance that the decision maker is acting primarily for its own benefit
Para B68 — remuneration that creates significant exposure to the investee's variable returns indicates principal status. Market-based fees commensurate with services (e.g., 1% AUM fee + 20% above hurdle) align the decision maker with investors without creating exposure that would make them principal. The 1% / 2% rule of thumb is not in the standard; only the directional principle (less than commensurate → agent indicator; substantial variability → principal indicator) matters.
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