Financial Reporting · The concepts and principles of groups and consolidated financial statements

Group Structures: Subsidiaries, Associates and Investments

Updated 11 October 2026 · Fact-checked

A group structure shows how a parent controls other entities. If the investor has control (IFRS 10), the investee is a subsidiary and is fully consolidated. If it has significant influence (IAS 28), it is an associate, equity accounted. Otherwise it is an investment under IFRS 9. Shareholding is a guide, not the test.

Understand Group Structures: Subsidiaries, Associates and Investments

A group is a parent and all its subsidiaries. Each company is a separate legal entity, but the group reports as one economic unit. The consolidated financial statements show that unit. The first job in any group question is to decide what each investment is.

Under IFRS 10, an investor controls an investee when it has all three of these: power over the investee, exposure or rights to variable returns from it, and the ability to use its power to affect those returns. Power usually comes from voting rights. Holding more than 50% of the votes normally gives control. But control can exist below 50% (for example through contractual rights, rights to appoint the board, or a dominant holding against dispersed shareholders). It can also be absent above 50% if another party has the power, such as in a restricted situation.

Under IAS 28, significant influence is the power to take part in the financial and operating policy decisions of the investee, without control or joint control. It is presumed when the investor holds 20% or more of the voting power, unless it can be shown otherwise. Other evidence includes board representation, participation in policy-making, material transactions between the two, interchange of managers, and supply of essential technical information. An investee over which the investor has significant influence is an associate.

If there is neither control nor significant influence, the holding is a trade (simple) investment. It is accounted for under IFRS 9 as a financial asset, usually at fair value through profit or loss.

The treatment differs a lot. A subsidiary is consolidated line by line: 100% of assets, liabilities, income and expenses, with a non-controlling interest (NCI) for the part not owned. An associate is shown as one line in the statement of financial position (investment in associate) and one line in profit or loss (share of profit). An investment is shown at fair value, with dividends as income.

Key rules to remember

Control (IFRS 10): Control = power over investee + exposure to variable returns + ability to use power to affect returns; All three must be present. Usually evidenced by more than 50% of voting rights, but not always.
Significant influence (IAS 28): Holding of 20% or more of voting power → presumed significant influence; A presumption, not a fixed rule. It can be rebutted, and influence can exist below 20% with other evidence.
Typical treatment by holding: Above 50%: subsidiary (consolidate). 20% to 50%: associate (equity method). Below 20%: investment (IFRS 9).; A guide only. Always test control and influence first. Voting power may differ from share capital percentage.
Effective (indirect) holding: Effective interest = parent's % in subsidiary × subsidiary's % in sub-subsidiary; Used for NCI in a vertical group (P → S → T). D-shaped groups need direct and indirect holdings added together. Control is still tested by who has power, not the effective interest.
NCI share: NCI % = 100% − parent's % of equity owned; Applies to full consolidation of a subsidiary only.

How to solve Group Structures: Subsidiaries, Associates and Investments questions

Use this method for any question asking you to classify an investment or explain its treatment.

1Find the percentage of voting rights held, not just the percentage of share capital. Note any preference shares or non-voting shares.
2Check for control under IFRS 10: power, variable returns, and link between them. Look for board appointment rights, contractual agreements, options, or other holders with large blocks.
3If control is absent, check for significant influence under IAS 28: 20% or more of votes, board seat, policy participation, material transactions.
4If neither applies, treat it as an investment under IFRS 9.
5State the accounting treatment: full consolidation with NCI, equity method, or fair value.
6For indirect holdings, calculate the effective interest and the NCI, but decide control level by level.
7Write the reasoning in short sentences tied to the facts in the scenario.

Quickest way: Three-question classification

When to use it: Use this in Section A and OT case questions where you have about two to three minutes per question.

Does the investor control it? Look for more than 50% votes or board control. If yes, subsidiary.
If no, is the holding 20% or more, or is there a board seat or policy role? If yes, associate.
If no to both, it is an investment.
Before you answer, scan the wording for traps: non-voting shares, a rival holding a larger block, or options that are currently exercisable.

Common mistakes in Group Structures: Subsidiaries, Associates and Investments

Treating 50% or less as never a subsidiary.
Students memorise the percentage bands as hard rules.
Fix: Always test the three IFRS 10 elements. Control can exist below 50% if the investor has power through other means.
Treating any holding above 50% as a subsidiary.
The majority rule feels automatic.
Fix: Read the scenario for restrictions, such as another party having the right to direct relevant activities. If power is missing, there is no control.
Saying 20% automatically gives significant influence.
The 20% figure is taught as a rule.
Fix: Say it is a presumption. Look for evidence that supports or rebuts it.
Using share capital percentage instead of voting rights.
Questions give nominal share numbers and students skip the voting detail.
Fix: Ask which shares carry votes. Non-voting preference shares do not count towards power.
Consolidating only the parent's share of an subsidiary's assets.
Confusion with the equity method or proportionate treatment.
Fix: A subsidiary is consolidated 100% line by line. The NCI shows the outside owners' share.
Forgetting potential voting rights such as currently exercisable options.
Students only count shares already held.
Fix: Include substantive options and convertibles that can be exercised now when assessing power.

Worked examples

Example 1

Alpha holds 60% of the voting shares of Beta. Alpha also holds 30% of the voting shares of Gamma and has appointed two of the five directors of Gamma. Alpha holds 8% of the shares of Delta, which it holds for dividend income and has no say in Delta's decisions. Classify each investment and state the treatment in Alpha's consolidated financial statements.

Show the solution

Beta: 60% of votes gives power over the relevant activities. Alpha is exposed to returns through its dividends and equity, and can use its power to affect them. Control is met.
Beta is a subsidiary. Treatment: full consolidation, with a 40% non-controlling interest.
Gamma: 30% is above the 20% presumption. Alpha also has two of five board seats. With 30% of votes and two of five board seats, and no other facts indicating power over the relevant activities, Alpha does not have control. Significant influence is the conclusion.
Gamma is an associate. Treatment: equity method, shown as one line in assets and one line for the share of profit.
Delta: 8% holding, no board role, no influence. It is neither a subsidiary nor an associate.
Delta is an investment. Treatment: IFRS 9 financial asset, normally at fair value through profit or loss, dividends as income.

Answer: Beta is a subsidiary (consolidate, 40% NCI), Gamma is an associate (equity method), and Delta is a simple investment (IFRS 9 fair value).

Example 2

Parent P holds 80% of the equity shares of S. S holds 70% of the equity shares of T. All shares carry one vote. Calculate P's effective interest in T and the total non-controlling interest percentage in T, and state whether T is a subsidiary of P.

Show the solution

S controls T because it holds 70% of the votes. T is a subsidiary of S.
P controls S because it holds 80% of the votes. Through S, P controls T, so T is a subsidiary of P.
P's effective interest in T = 80% × 70% = 56%.
The NCI in T from the group's view = 100% − 56% = 44%.
Check: outsiders hold 30% of T directly. They also share in S's 70% stake in T through their 20% of S, which is 20% × 70% = 14%. 30% + 14% = 44%.

Answer: T is a subsidiary of P. P's effective interest is 56% and the NCI in T is 44%.

Exam tips

In OT questions, read the scenario for traps such as non-voting shares, options, or another large shareholder before applying any percentage.
Write 'presumed' when you mention 20%, and 'normally' when you mention 50%. Examiners reward this precision.
In written answers, name the three IFRS 10 elements and apply each to the facts. Do not just state the conclusion.
For a group with sub-subsidiaries, draw the structure first and mark each percentage. It prevents multiplication errors.
State the accounting treatment as well as the classification. The next mark is often for saying consolidate, equity account, or IFRS 9.

Practice questions from The concepts and principles of groups and consolidated financial statements

Group Structures: Subsidiaries, Associates and Investments: frequently asked questions

What is the definition of control under IFRS 10?

An investor controls an investee when it has power over it, is exposed to variable returns from it, and can use its power to affect those returns. All three must be present. Voting rights are the usual source of power, but not the only one.

Is 20% the rule for an associate?

No. Holding 20% or more of the votes creates a presumption of significant influence under IAS 28, but it can be rebutted. Influence can also exist below 20% if other evidence, such as a board seat, supports it.

What is the difference between a subsidiary, an associate and a trade investment?

A subsidiary is controlled and fully consolidated. An associate is significantly influenced and equity accounted. A trade investment gives neither control nor influence and is accounted for under IFRS 9, usually at fair value.

Can a company with less than 50% be a subsidiary?

Yes, if the investor still has power and exposure to returns. This could arise through contractual rights, board control or a dominant holding when other shareholdings are widely spread. Always test the IFRS 10 elements.