ExpertMedium2 marksMultiple Choice
ACCA · Question 08 · Preparing Simple Consolidated Financial Statements
Section A
According to IFRS 10 Consolidated Financial Statements, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Which TWO of the following are essential elements of control?
Section A
According to IFRS 10 Consolidated Financial Statements, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Which TWO of the following are essential elements of control?
Answer options:
A.
Ownership of more than 50% of the equity shares.
B.
Power over the investee.
C.
Exposure, or rights, to variable returns from its involvement with the investee.
D.
The ability to appoint the majority of the workforce.
How to approach this question
Recall the three elements of control under IFRS 10: Power, exposure/rights to variable returns, and the ability to use power to affect returns.
Full Answer
IFRS 10 states that an investor controls an investee if and only if the investor has all the following: (a) power over the investee; (b) exposure, or rights, to variable returns from its involvement with the investee; and (c) the ability to use its power over the investee to affect the amount of the investor's returns.
Common mistakes
Assuming >50% ownership is the strict definition of control. It is an indicator, but not the definition.
Practice the full ACCA FA — Financial Accounting Practice Exam 5
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