Question

Zumer Ltd owns 45% of the voting shares in Ryder Ltd. The accountant of Zumer is considering whether Zumer should prepare consolidated financial statements. Required: Provide your advice to the accountant in accordance with AASB 10 Consolidated Financial Statements.

Answer 1

According to AASB 10 ,control exists when the reporting entity is exposed to the variable returns (eg. dividends) from its involvement with the other entity and is able to influence the those returns through its power over that entity. The reporting entity has the power when it has rights (i.e. appoint key management, voting rights, potential voting rights, capital decisions ) that give the entity to direct the activities that significantly affect the investee returns. The company not only must not consider its holding and rights but also the rights and holdings of other shareholders to determine if it has the necessary power to consolidate the financial statements.