Home › CA Final › financialreporting › Ind AS 28 — Associates & JVs: Significant Influence, Equity Method, Exemptions › An entity holds 10% of an investee and an option…
An entity holds 10% of an investee and an option to acquire another 15%. The entity does NOT currently have the financial resources to exercise the option. Under Ind AS 28, when assessing significant influence:
ADefer assessment until the option is actually exercised
BConsider the potential voting rights — because they are CURRENTLY EXERCISABLE; financial ability to exercise is NOT a screening criterion under Ind AS 28 (unlike Ind AS 110); presumption of significant influence applies
CIgnore the option because options are never relevant
DIgnore the option because the entity cannot afford to exercise it (Ind AS 110 substantive test)
Answer & Solution
Correct answer: B. Consider the potential voting rights — because they are CURRENTLY EXERCISABLE; financial ability to exercise is NOT a screening criterion under Ind AS 28 (unlike Ind AS 110); presumption of significant influence applies
Ind AS 28 considers ALL currently exercisable potential voting rights — without the Ind AS 110 substantive-test filter for management intention and financial ability. So the 10% + 15% potential rights cross 20% and the presumption of significant influence applies.
Related questions
An entity loses significant influence over an associate when it loses the power to particiAn investor's interest in an associate is held PARTIALLY through a venture capital organisA wholly-owned subsidiary holds investments in associates. The subsidiary's ultimate parenA Ltd. invests ₹1,00,000 for 25% of B Ltd. (associate). In year 1, B earns ₹10,000 profit,A mutual fund holds 22% of the equity of Company P. Ordinarily P would be presumed an assoAn investor holds compulsorily convertible preference shares (CCPS) in an investee. The CCM Ltd. holds 10% in an investee. 9 other investors each hold 10%. Decisions about most relR Ltd. holds 10% of Y Ltd.'s equity and has licensed essential tyre-manufacturing technolo