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M Ltd. holds 10% in an investee. 9 other investors each hold 10%. Decisions about most relevant activities are by majority. Decisions on TAKING BORROWINGS require UNANIMOUS consent; borrowings are not among the activities that most significantly affect returns. Does M have significant influence?
AYes — M and the other 9 jointly control the entity
BNo — M's 10% is below 20% and other matters are decided by majority
CNo — unanimous consent for borrowings means M only has protective rights
DYes — M's consent is required for borrowings (a relevant activity), evidencing participation in policy-making; since borrowings are not the most significant activity, joint control does not arise but significant influence does
Answer & Solution
Correct answer: D. Yes — M's consent is required for borrowings (a relevant activity), evidencing participation in policy-making; since borrowings are not the most significant activity, joint control does not arise but significant influence does
M's unanimous consent right is for a RELEVANT activity (taking borrowings) — that is participation in policy-making (an indicator of significant influence). Because borrowings are not the most significant relevant activity, joint control under Ind AS 111 is not triggered (you can't characterise the borrowings decision as 'the' control lever). But significant influence under Ind AS 28 is established.
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