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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Financial Reporting

Case: Veda Industries Ltd. owns 45% of the voting rights in Kiran Ltd. The remaining 55% is spread among thousands of small shareholders, none holding more than 0.1%, and historically few attend meetings. Veda appoints the majority of Kiran's board and directs its relevant activities. Under Ind AS 110, how should Veda treat Kiran?

Veda should consolidate Kiran as a subsidiary. Ind AS 110 defines control by power over relevant activities, exposure to variable returns and the ability to use power to affect them, not by a 50% holding. Veda's 45% with widely dispersed other holders and board control gives de facto control.

  1. AConsolidate it as a subsidiary because it has power, exposure to variable returns and ability to use powerCorrect
  2. BAccount for it as an associate since holding is below 50%
  3. CTreat it as a joint venture
  4. DMeasure it at fair value as a financial asset only

Explanation

Control under Ind AS 110 is based on power over relevant activities, exposure to variable returns and ability to affect them, not merely majority voting. Veda's 45% with a dispersed remaining holding and board control gives de facto control, so Kiran is consolidated. Associate treatment relies only on the 50% threshold, which is wrong.

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