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Company P holds 40,000 of 1,00,000 shares of Company X and an option (currently exercisable, exercise price slightly above market) to acquire another 25,000 shares. Two other shareholders hold 35,000 and 25,000 shares each, with currently exercisable options for 2,000 additional shares each. Does Company P control Company X for Ind AS 103 purposes?
ANo, because Company P only owns 40% of issued shares
BYes, but only after Company P exercises the option
CYes, because the potential voting rights are currently exercisable and have economic substance: if exercised, P would hold 65,000 of 1,29,000 — a majority even after all other options are exercised
DNo, because the option is out of the money
Answer & Solution
Correct answer: C. Yes, because the potential voting rights are currently exercisable and have economic substance: if exercised, P would hold 65,000 of 1,29,000 — a majority even after all other options are exercised
Ind AS 110 requires considering currently exercisable potential voting rights with economic substance. Although P holds 40% directly, on full exercise P would own 65,000 of 1,29,000 (~50.4%) — a majority — and the small premium makes the option economically meaningful. Control exists today, before exercise.
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