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QUESTION 4 CONSOLIDATION A. NZ IFRS 10 defines the parent-subsidiary relationship in terms of control rather...

QUESTION 4 CONSOLIDATION

A. NZ IFRS 10 defines the parent-subsidiary relationship in terms of control rather than majority ownership. Write down one advantage and one disadvantage of control as the basis for parent-subsidiary relationship.

B. Give an example to illustrate how consolidation mitigates financial reporting abuses by the parent.

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Answer #1

A. One of the main advantages of the parent and subsidiary relationship is that They can share the resources in between and also subsidiary gets support from parent company. Coming to the disadvantage, Establishing the subsidiary may be expensive in some of the countries. B. For example Take A and B as parent and subsidiary companies respectively. A may be having availed some of the services / products from the B. Then there should not be any difference in the value while making the consolidation, otherwise there is abuse in the rates/quantity and in any other things. Coming to another example if A have made any investment in B then it should reflect the same in B, otherwise there are chances for the abuse.

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