A holds 49.4% of X and has 2 out of 5 directors. B holds 50.6% of X and holds 3 directorships and appoints the chairman. The appointment or dismissal of the Chief Executive Officer, the Chief Financial Officer, the adoption or amendment of the budget or business plan, as well as the decisions of indebtedness, investments, acquisitions or disposals of assets require the agreement of A.
Does B have to consolidate X by full consolidation or by proportionate consolidation under IFRS rules? And A by proportionate consolidation or equity method? (Note : Proportionate Consolidation option and preference has been removed out from IFRS 11, that replaced IAS 31)
Answer to problem 1 by Vernimmen : A does not control X because its needs B to be able to take most important decisions in S. So for both A and B, it is the proportionate integration that is necessary.
Company X is 50% owned by the company P, 25% by the company R and 25% by the company S.
Main decisions are taken by a majority of 70% in X.
Can P, which de facto has a right of veto over X, under IFRS, consolidate its participation according to the method of proportional integration, because it would share the control of X with another shareholder?
Answer to problem 2 by Vernimmen: No, because control sharing is with well-defined partners. But here P can share control with R, or S or R and S, but nothing says that it’s always with the same partner. So P will have to consolidate X by equity method.
Note: The above 2 Questions were taken from The Vernimmen.com Newsletter No. 112 (April 2018) by Pascal Quiry and Yann Le Fur