Standard 110: Consolidated Financial Statements

Standard 110: Consolidated Financial Statements · Complied AI

(c)

the ability to use its power over the investee to affect the amount of the investor’s returns (see paragraphs 17 and 18 ).

8 An investor shall consider all facts and circumstances when assessing whether it controls an investee. The investor shall reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed in paragraph 7 (see paragraphs B80 – B85 ).

9 Two or more investors collectively control an investee when they must act together to direct the relevant activities . In such cases, because no investor can direct the activities without the co-operation of the others, no investor individually controls the investee. Each investor would account for its interest in the investee in accordance with the relevant Ind ASs, such as Ind AS 111, Joint Arrangements , Ind AS 28, Investments in Associates and Joint Ventures, or Ind AS 109, Financial Instruments.

Power

10 An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities , ie the activities that significantly affect the investee’s returns.

11 Power arises from rights. Sometimes assessing power is straightforward, such as when power over an investee is obtained directly and solely from the voting rights granted by equity instruments such as shares, and can be assessed by considering the voting rights from those shareholdings. In other cases, the assessment will be more complex and require more than one factor to be considered, for example when power results from one or more contractual arrangements.

12 An investor with the current ability to direct the relevant activities has power even if its rights to direct have yet to be exercised. Evidence that the investor has been directing relevant activities can help determine whether the investor has power, but such evidence is not, in itself, conclusive in determining whether the investor has power over an investee.

13 If two or more investors each have existing rights that give them the unilateral ability to direct different relevant activities, the investor that has the current ability to direct the activities that most significantly affect the returns of the investee has power over the investee.

14 An investor can have power over an investee even if other entities have existing rights that give them the current ability to participate in the direction of the relevant activities, for example when another entity has significant influence . However, an investor that holds only protective rights does not have power over an investee (see paragraphs B26–B28), and consequently does not control the investee.

Returns

15 An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor’s returns from its involvement have the potential to vary as a result of the investee’s performance. The investor’s returns can be only positive, only negative or both positive and negative.

16 Although only one investor can control an investee, more than one party can share in the returns of an investee. For example, holders of non-controlling interests can share in the profits or distributions of an investee.

Link between power and returns

17 An investor controls an investee if the investor not only has power over the investee and exposure or rights to variable returns from its involvement with the investee, but also has the ability to use its power to affect the investor’s returns from its involvement with the investee.

18 Thus, an investor with decision-making rights shall determine whether it is a principal or an agent. An investor that is an agent in accordance with paragraphs B58 – B72 does not control an investee when it exercises decision-making rights delegated to it.

Accounting requirements

19 A parent shall prepare consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances.

20 Consolidation of an investee shall begin from the date the investor obtains control of the investee and cease when the investor loses control of the investee.

21 Paragraphs B86 – B93 set out guidance for the preparation of consolidated financial statements.

Non-controlling interests

22 A parent shall present non-controlling interests in the consolidated balance sheet within equity, separately from the equity of the owners of the parent.

23 Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions (ie transactions with owners in their capacity as owners).

24 Paragraphs B94 – B96 set out guidance for the accounting for non- controlling interests in consolidated financial statements.

Loss of control

25 If a parent loses control of a subsidiary, the parent:

(d)

it has ownership interests in the form of equity or similar interests (see paragraphs B85V – B85W ).

The absence of any of these typical characteristics does not necessarily disqualify an entity from being classified as an investment entity. An investment entity that does not have all of these typical characteristics provides additional disclosure required by paragraph 9A of Ind AS 112, Disclosure of Interests in Other Entities .

28 If facts and circumstances indicate that there are changes to one or more of the three elements that make up the definition of an investment entity, as described in paragraph 27, or the typical characteristics of an investment entity, as described in paragraph 28, a parent shall reassess whether it is an investment entity.

30 A parent that either ceases to be an investment entity or becomes an investment entity shall account for the change in its status prospectively from the date at which the change in status occurred (see paragraphs B100 – B101 ).

Investment entities: exception to consolidation

31 Except as described in paragraph 32, an investment entity shall not consolidate its subsidiaries or apply Ind AS 103 when it obtains control of another entity. Instead, an investment entity shall measure an investment in a subsidiary at fair value through profit or loss in accordance with Ind AS 109 .

32 6 Notwithstanding the requirement in paragraph 31, if an investment entity has a subsidiary that is not itself an investment entity and whose main purpose and activities are providing services that relate to the investment entity’s investment activities (see paragraphs B85C–B85E), it shall consolidate that subsidiary in accordance with paragraphs 19 – 26 of this Ind AS and apply the requirements of Ind AS 103 to the acquisition of any such subsidiary.

33 A parent of an investment entity shall consolidate all entities that it controls, including those controlled through an investment entity subsidiary, unless the parent itself is an investment entity.

Appendix A

Defined terms

This appendix is an integral part of the Ind AS.

consolidated

financial

statements

The financial statements of a group in which the assets,

liabilities, equity, income, expenses and cash flows of the

parent and its subsidiaries are presented as those of a

single economic entity.

control of an

investee

An investor controls an investee when the investor 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.

decision maker

An entity with decision-making rights that is either a principal or an agent for other parties.

group

A parent and its subsidiaries .

investment entity

An entity that:

(e)

whether the investor has the ability to use its power over the investee to affect the amount of the investor’s return (see paragraphs B58-B72).

B4 When assessing control of an investee , an investor shall consider the nature of its relationship with other parties (see paragraphs B73 - B75 ).

Purpose and design of an investee

B5 When assessing control of an investee, an investor shall consider the purpose and design of the investee in order to identify the relevant activities, how decisions about the relevant activities are made, who has the current ability to direct those activities and who receives returns from those activities.

B6 When an investee’s purpose and design are considered, it may be clear that an investee is controlled by means of equity instruments that give the holder proportionate voting rights, such as ordinary shares in the investee. In this case, in the absence of any additional arrangements that alter decision-making, the assessment of control focuses on which party, if any, is able to exercise voting rights sufficient to determine the investee’s operating and financing policies (see paragraphs B34 – B50 ). In the most straightforward case, the investor that holds a majority of those voting rights, in the absence of any other factors, controls the investee.

B7 To determine whether an investor controls an investee in more complex cases, it may be necessary to consider some or all of the other factors in paragraph B3.

B8 An investee may be designed so that voting rights are not the dominant factor in deciding who controls the investee, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. In such cases, an investor’s consideration of the purpose and design of the investee shall also include consideration of the risks to which the investee was designed to be exposed, the risks it was designed to pass on to the parties involved with the investee and whether the investor is exposed to some or all of those risks. Consideration of the risks includes not only the downside risk, but also the potential for upside.

Power

B9 To have power over an investee, an investor must have existing rights that give it the current ability to direct the relevant activities. For the purpose of assessing power, only substantive rights and rights that are not protective shall be considered (see paragraphs B22 – B28 ).

B10 The determination about whether an investor has power depends on the relevant activities, the way decisions about the relevant activities are made and the rights the investor and other parties have in relation to the investee.

Relevant activities and direction of relevant activities

B11 For many investees, a range of operating and financing activities significantly affect their returns. Examples of activities that, depending on the circumstances, can be relevant activities include, but are not limited to:

(f)

which investor controls the medical product once the development phase is successful.

Example 2

An investment vehicle (the investee) is created and financed with a debt instrument held by an investor (the debt investor) and equity instruments held by a number of other investors. The equity tranche is designed to absorb the first losses and to receive any residual return from the investee. One of the equity investors who holds 30 per cent of the equity is also the asset manager. The investee uses its proceeds to purchase a portfolio of financial assets, exposing the investee to the credit risk associated with the possible default of principal and interest payments of the assets. The transaction is marketed to the debt investor as an investment with minimal exposure to the credit risk associated with the possible default of the assets in the portfolio because of the nature of these assets and because the equity tranche is designed to absorb the first losses of the investee. The returns of the investee are significantly affected by the management of the investee’s asset portfolio, which includes decisions about the selection, acquisition and disposal of the assets within portfolio guidelines and the management upon default of any portfolio assets. All those activities are managed by the asset manager until defaults reach a specified proportion of the portfolio value (ie when the value of the portfolio is such that the equity tranche of the investee has been consumed). From that time, a third-party trustee manages the assets according to the instructions of the debt investor. Managing the investee’s asset portfolio is the relevant activity of the investee. The asset manager has the ability to direct the relevant activities until defaulted assets reach the specified proportion of the portfolio value; the debt investor has the ability to direct the relevant activities when the value of defaulted assets surpasses that specified proportion of the portfolio value. The asset manager and the debt investor each need to determine whether they are able to direct the activities that most significantly affect the investee’s returns, including considering the purpose and design of the investee as well as each party’s exposure to variability of returns.

Rights that give an investor power over an investee

B14 Power arises from rights. To have power over an investee, an investor must have existing rights that give the investor the current ability to direct the relevant activities. The rights that may give an investor power can differ between investees.

B15 Examples of rights that, either individually or in combination, can give an investor power include but are not limited to:

(c)

Whether the party or parties that hold the rights would benefit from the exercise of those rights. For example, the holder of potential voting rights in an investee (see paragraphs B47 – B50 ) shall consider the exercise or conversion price of the instrument. The terms and conditions of potential voting rights are more likely to be substantive when the instrument is in the money or the investor would benefit for other reasons (eg by realising synergies between the investor and the investee) from the exercise or conversion of the instrument.

B24 To be substantive, rights also need to be exercisable when decisions about the direction of the relevant activities need to be made. Usually, to be substantive, the rights need to be currently exercisable. However, sometimes rights can be substantive, even though the rights are not currently exercisable.

Application examples

Example 3

The investee has annual shareholder meetings at which decisions to direct the relevant activities are made. The next scheduled shareholders’ meeting is in eight months. However, shareholders that individually or collectively hold at least 5 per cent of the voting rights can call a special meeting to change the existing policies over the relevant activities, but a requirement to give notice to the other shareholders means that such a meeting cannot be held for at least 30 days. Policies over the relevant activities can be changed only at special or scheduled shareholders’ meetings. This includes the approval of material sales of assets as well as the making or disposing of significant investments.

The above fact pattern applies to examples 3A-3D described below.

Each example is considered in isolation.

Example 3A An investor holds a majority of the voting rights in the investee. The

investor's voting rights are substantive because the investor is able

to make decisions about the direction of the relevant activities when

they need to be made. The fact that it takes 30 days before the

investor can exercise its voting rights does not stop the investor

from having the current ability to direct the relevant activities from

the moment the investor acquires the shareholding.

Example 3B

An investor is party to a forward contract to acquire the majority of

shares in the investee. The forward contract's settlement date is in

25 days. The existing shareholders are unable to change the

existing policies over the relevant activities because a special

meeting cannot be held for at least 30 days, at which point the

forward contract will have been settled. Thus, the investor has rights

that are essentially equivalent to the majority shareholder in

example 3A above (ie the investor holding the forward contract can

make decisions about the direction of the relevant activities when

they need to be made). The investor's forward contract is a

substantive right that gives the investor the current ability to direct

the relevant activities even before the forward contract is settled.

Example 3C

An investor holds a substantive option to acquire the majority of

shares in the investee that is exercisable in 25 days and is deeply in

the money. The same conclusion would be reached as in example

3B.

Example 3D

An investor is party to a forward contract to acquire the majority of

shares in the investee, with no other related rights over the

investee. The forward contract's settlement date is in six months. In

contrast to the examples above, the investor does not have the

current ability to direct the relevant activities. The existing

shareholders have the current ability to direct the relevant activities

because they can change the existing policies over the relevant

activities before the forward contract is settled.

B25 Substantive rights exercisable by other parties can prevent an investor from controlling the investee to which those rights relate.

Such substantive rights do not require the holders to have the ability to initiate decisions. As long as the rights are not merely protective (see paragraphs B26–B28), substantive rights held by other parties may prevent the investor from controlling the investee even if the rights give the holders only the current ability to approve or block decisions that relate to the relevant activities.

Protective rights

B26 In evaluating whether rights give an investor power over an investee, the investor shall assess whether its rights, and rights held by others, are protective rights. Protective rights relate to fundamental changes to the activities of an investee or apply in exceptional circumstances. However, not all rights that apply in exceptional circumstances or are contingent on events are protective (see paragraphs B13 and B53 ).

B27 Because protective rights are designed to protect the interests of their holder without giving that party power over the investee to which those rights relate, an investor that holds only protective rights cannot have power or prevent another party from having power over an investee (see paragraph 14 ).

B28 Examples of protective rights include but are not limited to:

(c)

the right of a lender to seize the assets of a borrower if the borrower fails to meet specified loan repayment conditions.

Franchises

B29 A franchise agreement for which the investee is the franchisee often gives the franchisor rights that are designed to protect the franchise brand. Franchise agreements typically give franchisors some decision-making rights with respect to the operations of the franchisee.

B30 Generally, franchisors’ rights do not restrict the ability of parties other than the franchisor to make decisions that have a significant effect on the franchisee’s returns. Nor do the rights of the franchisor in franchise agreements necessarily give the franchisor the current ability to direct the activities that significantly affect the franchisee’s returns.

B31 It is necessary to distinguish between having the current ability to make decisions that significantly affect the franchisee’s returns and having the ability to make decisions that protect the franchise brand. The franchisor does not have power over the franchisee if other parties have existing rights that give them the current ability to direct the relevant activities of the franchisee.

B32 By entering into the franchise agreement the franchisee has made a unilateral decision to operate its business in accordance with the terms of the franchise agreement, but for its own account.

B33 Control over such fundamental decisions as the legal form of the franchisee and its funding structure may be determined by parties other than the franchisor and may significantly affect the returns of the franchisee. The lower the level of financial support provided by the franchisor and the lower the franchisor’s exposure to variability of returns from the franchisee the more likely it is that the franchisor has only protective rights.

Voting rights

B34 Often an investor has the current ability, through voting or similar rights, to direct the relevant activities. An investor considers the requirements in this section (paragraphs B35–B50) if the relevant activities of an investee are directed through voting rights.

Power with a majority of the voting rights

B35 An investor that holds more than half of the voting rights of an investee has power in the following situations, unless paragraph B36 or paragraph B37 applies:

(d)

any additional facts and circumstances that indicate the investor has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

B43 When the direction of relevant activities is determined by majority vote and an investor holds significantly more voting rights than any other vote holder or organised group of vote holders, and the other shareholdings are widely dispersed, it may be clear, after considering the factors listed in paragraph B42 (a)–(c) alone, that the investor has power over the investee.

Application examples

Example 4

An investor acquires 48 per cent of the voting rights of an investee.

The remaining voting rights are held by thousands of shareholders,

none individually holding more than 1 per cent of the voting rights.

None of the shareholders has any arrangements to consult any of the

others or make collective decisions. When assessing the proportion of

voting rights to acquire, on the basis of the relative size of the other

shareholdings, the investor determined that a 48 per cent interest

would be sufficient to give it control. In this case, on the basis of the

absolute size of its holding and the relative size of the other

shareholdings, the investor concludes that it has a sufficiently

dominant voting interest to meet the power criterion without the need

to consider any other evidence of power.

Example 5

Investor A holds 40 per cent of the voting rights of an investee and

twelve other investors each hold 5 per cent of the voting rights of the

investee. A shareholder agreement grants investor A the right to

appoint, remove and set the remuneration of management responsible

for directing the relevant activities. To change the agreement, a two-thirds majority vote of the shareholders is required. In this case,

investor A concludes that the absolute size of the investor's holding

and the relative size of the other shareholdings alone are not conclusive in determining whether the investor has rights sufficient to

give it power. However, investor A determines that its contractual right

to appoint, remove and set the remuneration of management is

sufficient to conclude that it has power over the investee. The fact that

investor A might not have exercised this right or the likelihood of

investor A exercising its right to select, appoint or remove

management shall not be considered when assessing whether

investor A has power.

B44 In other situations, it may be clear after considering the factors listed in paragraph B42 (a)–(c) alone that an investor does not have power.

Application example

Example 6

Investor A holds 45 per cent of the voting rights of an investee. Two

other investors each hold 26 per cent of the voting rights of the

investee. The remaining voting rights are held by three other

shareholders, each holding 1 per cent. There are no other

arrangements that affect decision-making. In this case, the size of

investor A's voting interest and its size relative to the other

shareholdings are sufficient to conclude that investor A does not have

power. Only two other investors would need to co-operate to be able

to prevent investor A from directing the relevant activities of the

investee.

B45 However, the factors listed in paragraph B42 (a)–(c) alone may not be conclusive. If an investor, having considered those factors, is unclear whether it has power, it shall consider additional facts and circumstances, such as whether other shareholders are passive in nature as demonstrated by voting patterns at previous shareholders’ meetings. This includes the assessment of the factors set out in paragraph B18 and the indicators in paragraphs B19 and B20. The fewer voting rights the investor holds, and the fewer parties that would need to act together to outvote the investor, the more reliance would be placed on the additional facts and circumstances to assess whether the investor’s rights are sufficient to give it power. When the facts and circumstances in paragraphs B18 – B20 are considered together with the investor’s rights, greater weight shall be given to the evidence of power in paragraph B18 than to the indicators of power in paragraphs B19 and B20.

Application examples

Example 7

An investor holds 45 per cent of the voting rights of an investee.

Eleven other shareholders each hold 5 per cent of the voting rights of

the investee. None of the shareholders has contractual arrangements

to consult any of the others or make collective decisions. In this case,

the absolute size of the investor's holding and the relative size of the

other shareholdings alone are not conclusive in determining whether

the investor has rights sufficient to give it power over the investee.

Additional facts and circumstances that may provide evidence that the

investor has, or does not have, power shall be considered.

Example 8

An investor holds 35 per cent of the voting rights of an investee. Three

other shareholders each hold 5 per cent of the voting rights of the

investee. The remaining voting rights are held by numerous other

shareholders, none individually holding more than 1 per cent of the

voting rights. None of the shareholders has arrangements to consult

any of the others or make collective decisions. Decisions about the

relevant activities of the investee require the approval of a majority of

votes cast at relevant shareholders' meetings-75 per cent of the

voting rights of the investee have been cast at recent relevant

shareholders' meetings. In this case, the active participation of the

other shareholders' at recent shareholders' meetings indicates that the

investor would not have the practical ability to direct the relevant

activities unilaterally, regardless of whether the investor has directed

the relevant activities because a sufficient number of other

shareholders voted in the same way as the investor.

B46 If it is not clear, having considered the factors listed in paragraph B42 (a)–(d), that the investor has power, the investor does not control the investee.

Potential voting rights

B47 When assessing control, an investor considers its potential voting rights as well as potential voting rights held by other parties, to determine whether it has power. Potential voting rights are rights to obtain voting rights of an investee, such as those arising from convertible instruments or options, including forward contracts. Those potential voting rights are considered only if the rights are substantive (see paragraphs B22 – B25 ).

B48 When considering potential voting rights, an investor shall consider the purpose and design of the instrument, as well as the purpose and design of any other involvement the investor has with the investee. This includes an assessment of the various terms and conditions of the instrument as well as the investor’s apparent expectations, motives and reasons for agreeing to those terms and conditions.

B49 If the investor also has voting or other decision-making rights relating to the investee’s activities, the investor assesses whether those rights, in combination with potential voting rights, give the investor power.

B50 Substantive potential voting rights alone, or in combination with other rights, can give an investor the current ability to direct the relevant activities. For example, this is likely to be the case when an investor holds 40 per cent of the voting rights of an investee and, in accordance with paragraph B23 , holds substantive rights arising from options to acquire a further 20 per cent of the voting rights.

Application examples

Example 9 Investor A holds 70 per cent of the voting rights of an investee.

Investor B has 30 per cent of the voting rights of the investee as well

as an option to acquire half of investor A's voting rights. The option is

exercisable for the next two years at a fixed price that is deeply out of

the money (and is expected to remain so for that two-year period).

Investor A has been exercising its votes and is actively directing the

relevant activities of the investee. In such a case, investor A is likely

to meet the power criterion because it appears to have the current

ability to direct the relevant activities. Although investor B has

currently exercisable options to purchase additional voting rights

(that, if exercised, would give it a majority of the voting rights in the

investee), the terms and conditions associated with those options are

such that the options are not considered substantive.

Example 10

Investor A and two other investors each hold a third of the voting

rights of an investee. The investee's business activity is closely

related to investor A. In addition to its equity instruments, investor A

also holds debt instruments that are convertible into ordinary shares

of the investee at any time for a fixed price that is out of the money

(but not deeply out of the money). If the debt were converted,

investor A would hold 60 per cent of the voting rights of the investee.

Investor A would benefit from realising synergies if the debt

instruments were converted into ordinary shares. Investor A has

power over the investee because it holds voting rights of the investee

together with substantive potential voting rights that give it the

current ability to direct the relevant activities.

Power when voting or similar rights do not have a significant effect on the investee’s returns

B51 In assessing the purpose and design of an investee (see paragraphs B5 – B8 ), an investor shall consider the involvement and decisions made at the investee’s inception as part of its design and evaluate whether the transaction terms and features of the involvement provide the investor with rights that are sufficient to give it power. Being involved in the design of an investee alone is not sufficient to give an investor control. However, involvement in the design may indicate that the investor had the opportunity to obtain rights that are sufficient to give it power over the investee.

B52 In addition, an investor shall consider contractual arrangements such as call rights, put rights and liquidation rights established at the investee’s inception. When these contractual arrangements involve activities that are closely related to the investee, then these activities are, in substance, an integral part of the investee’s overall activities, even though they may occur outside the legal boundaries of the investee. Therefore, explicit or implicit decision-making rights embedded in contractual arrangements that are closely related to the investee need to be considered as relevant activities when determining power over the investee.

B53 For some investees, relevant activities occur only when particular circumstances arise or events occur. The investee may be designed so that the direction of its activities and its returns are predetermined unless and until those particular circumstances arise or events occur. In this case, only the decisions about the investee’s activities when those circumstances or events occur can significantly affect its returns and thus be relevant activities. The circumstances or events need not have occurred for an investor with the ability to make those decisions to have power. The fact that the right to make decisions is contingent on circumstances arising or an event occurring does not, in itself, make those rights protective.

Application examples

Example 11 An investee's only business activity, as specified in its founding

documents, is to purchase receivables and service them on a day-today basis for its investors. The servicing on a day-to-day basis

includes the collection and passing on of principal and interest

payments as they fall due. Upon default of a receivable the investee

automatically puts the receivable to an investor as agreed separately

in a put agreement between the investor and the investee. The only

relevant activity is managing the receivables upon default because it

is the only activity that can significantly affect the investee's returns.

Managing the receivables before default is not a relevant activity

because it does not require substantive decisions to be made that

could significantly affect the investee's returns-the activities before

default are predetermined and amount only to collecting cash flows

as they fall due and passing them on to investors. Therefore, only the

investor's right to manage the assets upon default should be

considered when assessing the overall activities of the investee that

significantly affect the investee's returns.

In this example, the design of the investee ensures that the investor

has decision-making authority over the activities that significantly

affect the returns at the only time that such decision-making authority

is required. The terms of the put agreement are integral to the overall

transaction and the establishment of the investee. Therefore, the

terms of the put agreement together with the founding documents of

the investee lead to the conclusion that the investor has power over

the investee even though the investor takes ownership of the

receivables only upon default and manages the defaulted receivables

outside the legal boundaries of the investee.

Example 12

The only assets of an investee are receivables. When the purpose

and design of the investee are considered, it is determined that the

only relevant activity is managing the receivables upon default. The

party that has the ability to manage the defaulting receivables has

power over the investee, irrespective of whether any of the borrowers

have defaulted.

B54 An investor may have an explicit or implicit commitment to ensure that an investee continues to operate as designed. Such a commitment may increase the investor’s exposure to variability of returns and thus increase the incentive for the investor to obtain rights sufficient to give it power. Therefore a commitment to ensure that an investee operates as designed may be an indicator that the investor has power, but does not, by itself, give an investor power, nor does it prevent another party from having power.

Exposure, or rights, to variable returns from an investee

B55 When assessing whether an investor has control of an investee, the investor determines whether it is exposed, or has rights, to variable returns from its involvement with the investee.

B56 Variable returns are returns that are not fixed and have the potential to vary as a result of the performance of an investee. Variable returns can be only positive, only negative or both positive and negative (see paragraph 15 ). An investor assesses whether returns from an investee are variable and how variable those returns are on the basis of the substance of the arrangement and regardless of the legal form of the returns. For example, an investor can hold a bond with fixed interest payments. The fixed interest payments are variable returns for the purpose of this Ind AS because they are subject to default risk and they expose the investor to the credit risk of the issuer of the bond. The amount of variability (ie how variable those returns are) depends on the credit risk of the bond. Similarly, fixed performance fees for managing an investee’s assets are variable returns because they expose the investor to the performance risk of the investee. The amount of variability depends on the investee’s ability to generate sufficient income to pay the fee.

B57 Examples of returns include:

(b)

the discretion that the decision maker has when making decisions about those activities.

B63 A decision maker shall consider the purpose and design of the investee, the risks to which the investee was designed to be exposed, the risks it was designed to pass on to the parties involved and the level of involvement the decision maker had in the design of an investee. For example, if a decision maker is significantly involved in the design of the investee (including in determining the scope of decision-making authority), that involvement may indicate that the decision maker had the opportunity and incentive to obtain rights that result in the decision maker having the ability to direct the relevant activities.

Rights held by other parties

B64 Substantive rights held by other parties may affect the decision maker’s ability to direct the relevant activities of an investee. Substantive removal or other rights may indicate that the decision maker is an agent.

B65 When a single party holds substantive removal rights and can remove the decision maker without cause, this, in isolation, is sufficient to conclude that the decision maker is an agent. If more than one party holds such rights (and no individual party can remove the decision maker without the agreement of other parties) those rights are not, in isolation, conclusive in determining that a decision maker acts primarily on behalf and for the benefit of others. In addition, the greater the number of parties required to act together to exercise rights to remove a decision maker and the greater the magnitude of, and variability associated with, the decision maker’s other economic interests (ie remuneration and other interests), the less the weighting that shall be placed on this factor.

B66 Substantive rights held by other parties that restrict a decision maker’s discretion shall be considered in a similar manner to removal rights when evaluating whether the decision maker is an agent. For example, a decision maker that is required to obtain approval from a small number of other parties for its actions is generally an agent. (See paragraphs B22 – B25 for additional guidance on rights and whether they are substantive.)

B67 Consideration of the rights held by other parties shall include an assessment of any rights exercisable by an investee’s board of directors (or other governing body) and their effect on the decision- making authority (see paragraph B23 (b) ).

Remuneration

B68 The greater the magnitude of, and variability associated with, the decision maker’s remuneration relative to the returns expected from the activities of the investee, the more likely the decision maker is a principal.

B69 In determining whether it is a principal or an agent the decision maker shall also consider whether the following conditions exist:

(b)

whether its exposure to variability of returns is different from that of the other investors and, if so, whether this might influence its actions. For example, this might be the case when a decision maker holds subordinated interests in, or provides other forms of credit enhancement to, an investee.

The decision maker shall evaluate its exposure relative to the total variability of returns of the investee. This evaluation is made primarily on the basis of returns expected from the activities of the investee but shall not ignore the decision maker’s maximum exposure to variability of returns of the investee through other interests that the decision maker holds.

Application examples

Example 13 A decision maker (fund manager) establishes, markets and

manages a publicly traded, regulated fund according to narrowly

defined parameters set out in the investment mandate as required

by its local laws and regulations. The fund was marketed to

investors as an investment in a diversified portfolio of equity

securities of publicly traded entities. Within the defined

parameters, the fund manager has discretion about the assets in

which to invest. The fund manager has made a 10 per cent pro

rata investment in the fund and receives a market-based fee for its

services equal to 1 per cent of the net asset value of the fund. The

fees are commensurate with the services provided. The fund

manager does not have any obligation to fund losses beyond its

10 per cent investment. The fund is not required to establish, and

has not established, an independent board of directors. The

investors do not hold any substantive rights that would affect the

decision-making authority of the fund manager, but can redeem

their interests within particular limits set by the fund.

Although operating within the parameters set out in the investment

mandate and in accordance with the regulatory requirements, the

fund manager has decision-making rights that give it the current

ability to direct the relevant activities of the fund-the investors do

not hold substantive rights that could affect the fund manager's

decision-making authority. The fund manager receives a market-based fee for its services that is commensurate with the services

Proviso

provided and has also made a pro rata investment in the fund.

The remuneration and its investment expose the fund manager to

variability of returns from the activities of the fund without creating

exposure that is of such significance that it indicates that the fund

manager is a principal.

In this example, consideration of the fund manager's exposure to

variability of returns from the fund together with its decision-making authority within restricted parameters indicates that the

fund manager is an agent. Thus, the fund manager concludes that it does not control the fund.

Example 14

A decision maker establishes, markets and manages a fund that

provides investment opportunities to a number of investors. The

decision maker (fund manager) must make decisions in the best

interests of all investors and in accordance with the fund's

governing agreements. Nonetheless, the fund manager has wide

decision-making discretion. The fund manager receives a market-based fee for its services equal to 1 per cent of assets under

management and 20 per cent of all the fund's profits if a specified

profit level is achieved. The fees are commensurate with the

services provided.

Although it must make decisions in the best interests of all

investors, the fund manager has extensive decision-making

authority to direct the relevant activities of the fund. The fund

manager is paid fixed and performance-related fees that are

commensurate with the services provided. In addition, the

remuneration aligns the interests of the fund manager with those

of the other investors to increase the value of the fund, without

creating exposure to variability of returns from the activities of the

fund that is of such significance that the remuneration, when

considered in isolation, indicates that the fund manager is a

principal.

The above fact pattern and analysis applies to examples 14A-14C

described below. Each example is considered in isolation.

Example 14A

The fund manager also has a 2 per cent investment in the fund

that aligns its interests with those of the other investors. The fund

manager does not have any obligation to fund losses beyond its 2

per cent investment. The investors can remove the fund manager

by a simple majority vote, but only for breach of contract.

The fund manager's 2 per cent investment increases its exposure

to variability of returns from the activities of the fund without

creating exposure that is of such significance that it indicates that

the fund manager is a principal. The other investors' rights to

remove the fund manager are considered to be protective rights

because they are exercisable only for breach of contract. In this

example, although the fund manager has extensive decision-making authority and is exposed to variability of returns from its

interest and remuneration, the fund manager's exposure indicates

that the fund manager is an agent. Thus, the fund manager

concludes that it does not control the fund.

Example 14B

The fund manager has a more substantial pro rata investment in

the fund, but does not have any obligation to fund losses beyond

that investment. The investors can remove the fund manager by a

simple majority vote, but only for breach of contract.

In this example, the other investors' rights to remove the fund

manager are considered to be protective rights because they are

exercisable only for breach of contract. Although the fund manager

is paid fixed and performance-related fees that are commensurate

with the services provided, the combination of the fund manager's

investment together with its remuneration could create exposure to

variability of returns from the activities of the fund that is of such

significance that it indicates that the fund manager is a principal.

The greater the magnitude of, and variability associated with, the

fund manager's economic interests (considering its remuneration

and other interests in aggregate), the more emphasis the fund

manager would place on those economic interests in the analysis,

and the more likely the fund manager is a principal.

For example, having considered its remuneration and the other

factors, the fund manager might consider a 20 per cent investment

to be sufficient to conclude that it controls the fund. However, in

different circumstances (ie if the remuneration or other factors are

different), control may arise when the level of investment is

different.

Example 14C

The fund manager has a 20 per cent pro rata investment in the

fund, but does not have any obligation to fund losses beyond its 20

per cent investment. The fund has a board of directors, all of

whose members are independent of the fund manager and are

appointed by the other investors. The board appoints the fund

manager annually. If the board decided not to renew the fund

manager's contract, the services performed by the fund manager

could be performed by other managers in the industry.

Although the fund manager is paid fixed and performance-related fees that are commensurate with the services provided, the

combination of the fund manager's 20 per cent investment together

with its remuneration creates exposure to variability of returns from

the activities of the fund that is of such significance that it indicates

that the fund manager is a principal. However, the investors have

substantive rights to remove the fund manager-the board of

directors provides a mechanism to ensure that the investors can

remove the fund manager if they decide to do so.

In this example, the fund manager places greater emphasis on the

substantive removal rights in the analysis. Thus, although the fund

manager has extensive decision-making authority and is exposed

to variability of returns of the fund from its remuneration and

investment, the substantive rights held by the other investors

indicate that the fund manager is an agent. Thus, the fund manager

concludes that it does not control the fund.

Example 15

An investee is created to purchase a portfolio of fixed rate asset-backed securities, funded by fixed rate debt instruments and equity

instruments. The equity instruments are designed to provide first

loss protection to the debt investors and receive any residual

returns of the investee. The transaction was marketed to potential

debt investors as an investment in a portfolio of asset-backed

securities with exposure to the credit risk associated with the

possible default of the issuers of the asset-backed securities in the

portfolio and to the interest rate risk associated with the

management of the portfolio. On formation, the equity instruments

represent 10 per cent of the value of the assets purchased. A

decision maker (the asset manager) manages the active asset

portfolio by making investment decisions within the parameters set

out in the investee's prospectus. For those services, the asset

manager receives a market-based fixed fee (ie 1 per cent of assets

under management) and performance-related fees (ie 10 per cent

of profits) if the investee's profits exceed a specified level. The fees

are commensurate with the services provided. The asset manager

holds 35 per cent of the equity in the investee. The remaining 65

per cent of the equity, and all the debt instruments, are held by a

large number of widely dispersed unrelated third party investors.

The asset manager can be removed, without cause, by a simple

majority decision of the other investors.

The asset manager is paid fixed and performance-related fees that

are commensurate with the services provided. The remuneration

aligns the interests of the fund manager with those of the other

investors to increase the value of the fund. The asset manager has

exposure to variability of returns from the activities of the fund

because it holds 35 per cent of the equity and from its

remuneration.

Although operating within the parameters set out in the investee's

prospectus, the asset manager has the current ability to make

investment decisions that significantly affect the investee's

returns-the removal rights held by the other investors receive little

weighting in the analysis because those rights are held by a large

number of widely dispersed investors. In this example, the asset

manager places greater emphasis on its exposure to variability of

returns of the fund from its equity interest, which is subordinate to

the debt instruments. Holding 35 per cent of the equity creates

subordinated exposure to losses and rights to returns of the

investee, which are of such significance that it indicates that the

asset manager is a principal. Thus, the asset manager concludes

that it controls the investee.

Example 16

A decision maker (the sponsor) sponsors a multi-seller conduit,

which issues short-term debt instruments to unrelated third party

investors. The transaction was marketed to potential investors as

an investment in a portfolio of highly rated medium-term assets

with minimal exposure to the credit risk associated with the

possible default by the issuers of the assets in the portfolio.

Various transferors sell high quality medium-term asset portfolios

to the conduit. Each transferor services the portfolio of assets that

it sells to the conduit and manages receivables on default for a

market-based servicing fee. Each transferor also provides first loss

protection against credit losses from its asset portfolio through

over-collateralisation of the assets transferred to the conduit.

The sponsor establishes the terms of the conduit and manages the

operations of the conduit for a market-based fee. The fee is

commensurate with the services provided. The sponsor approves

the sellers permitted to sell to the conduit, approves the assets to

be purchased by the conduit and makes decisions about the

funding of the conduit. The sponsor must act in the best interests of all investors.

The sponsor is entitled to any residual return of the conduit and

also provides credit enhancement and liquidity facilities to the

conduit. The credit enhancement provided by the sponsor absorbs

losses of up to 5 per cent of all of the conduit's assets, after losses

are absorbed by the transferors. The liquidity facilities are not

advanced against defaulted assets. The investors do not hold

substantive rights that could affect the decision-making authority of

the sponsor.

Even though the sponsor is paid a market-based fee for its

services that is commensurate with the services provided, the

sponsor has exposure to variability of returns from the activities of

the conduit because of its rights to any residual returns of the

conduit and the provision of credit enhancement and liquidity

facilities (ie the conduit is exposed to liquidity risk by using short-term debt instruments to fund medium-term assets). Even though

each of the transferors has decision-making rights that affect the

value of the assets of the conduit, the sponsor has extensive

decision-making authority that gives it the current ability to direct

the activities that most significantly affect the conduit's returns (ie

the sponsor established the terms of the conduit, has the right to

make decisions about the assets (approving the assets purchased

and the transferors of those assets) and the funding of the conduit

(for which new investment must be found on a regular basis)). The

right to residual returns of the conduit and the provision of credit

enhancement and liquidity facilities expose the sponsor to

variability of returns from the activities of the conduit that is

different from that of the other investors. Accordingly, that

exposure indicates that the sponsor is a principal and thus the

sponsor concludes that it controls the conduit. The sponsor's

obligation to act in the best interest of all investors does not

prevent the sponsor from being a principal.

Relationship with other parties

B73 When assessing control, an investor shall consider the nature of its relationship with other parties and whether those other parties are acting on the investor’s behalf (ie they are ‘de facto agents’). The determination of whether other parties are acting as de facto agents requires judgement, considering not only the nature of the relationship but also how those parties interact with each other and the investor.

B74 Such a relationship need not involve a contractual arrangement. A party is a de facto agent when the investor has, or those that direct the activities of the investor have, the ability to direct that party to act on the investor’s behalf. In these circumstances, the investor shall consider its de facto agent’s decision-making rights and its indirect exposure, or rights, to variable returns through the de facto agent together with its own when assessing control of an investee.

B75 The following are examples of such other parties that, by the nature of their relationship, might act as de facto agents for the investor:

(f)

a party that has a close business relationship with the investor, such as the relationship between a professional service provider and one of its significant clients.

Control of specified assets

B76 An investor shall consider whether it treats a portion of an investee as a deemed separate entity and, if so, whether it controls the deemed separate entity.

B77 An investor shall treat a portion of an investee as a deemed separate entity if and only if the following condition is satisfied:

Specified assets of the investee (and related credit enhancements, if any) are the only source of payment for specified liabilities of, or specified other interests in, the investee. Parties other than those with the specified liability do not have rights or obligations related to the specified assets or to residual cash flows from those assets. In substance, none of the returns from the specified assets can be used by the remaining investee and none of the liabilities of the deemed separate entity are payable from the assets of the remaining investee. Thus, in substance, all the assets, liabilities and equity of that deemed separate entity are ring-fenced from the overall investee. Such a deemed separate entity is often called a ‘silo’.

B78 When the condition in paragraph B77 is satisfied, an investor shall identify the activities that significantly affect the returns of the deemed separate entity and how those activities are directed in order to assess whether it has power over that portion of the investee. When assessing control of the deemed separate entity, the investor shall also consider whether it has exposure or rights to variable returns from its involvement with that deemed separate entity and the ability to use its power over that portion of the investee to affect the amount of the investor’s returns.

B79 If the investor controls the deemed separate entity, the investor shall consolidate that portion of the investee. In that case, other parties exclude that portion of the investee when assessing control of, and in consolidating, the investee.

Continuous assessment

B80 An investor shall reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed in paragraph 7 .

B81 If there is a change in how power over an investee can be exercised, that change must be reflected in how an investor assesses its power over an investee. For example, changes to decision-making rights can mean that the relevant activities are no longer directed through voting rights, but instead other agreements, such as contracts, give another party or parties the current ability to direct the relevant activities.

B82 An event can cause an investor to gain or lose power over an investee without the investor being involved in that event. For example, an investor can gain power over an investee because decision-making rights held by another party or parties that previously prevented the investor from controlling an investee have lapsed.

B83 An investor also considers changes affecting its exposure, or rights, to variable returns from its involvement with an investee. For example, an investor that has power over an investee can lose control of an investee if the investor ceases to be entitled to receive returns or to be exposed to obligations, because the investor would fail to satisfy paragraph 7(b) (eg if a contract to receive performance-related fees is terminated).

B84 An investor shall consider whether its assessment that it acts as an agent or a principal has changed. Changes in the overall relationship between the investor and other parties can mean that an investor no longer acts as an agent, even though it has previously acted as an agent, and vice versa. For example, if changes to the rights of the investor, or of other parties, occur, the investor shall reconsider its status as a principal or an agent.

B85 An investor’s initial assessment of control or its status as a principal or an agent would not change simply because of a change in market conditions (eg a change in the investee’s returns driven by market conditions), unless the change in market conditions changes one or more of the three elements of control listed in paragraph 7 or changes the overall relationship between a principal and an agent.

Determining whether an entity is an investment entity

B85A An entity shall consider all facts and circumstances when assessing whether it is an investment entity, including its purpose and design. An entity that possesses the three elements of the definition of an investment entity set out in paragraph 27 is an investment entity. Paragraphs B85B–B85M describe the elements of the definition in more detail.

Business purpose

B85B The definition of an investment entity requires that the purpose of the entity is to invest solely for capital appreciation, investment income (such as dividends, interest or rental income), or both. Documents that indicate what the entity’s investment objectives are, such as the entity’s offering memorandum, publications distributed by the entity and other corporate or partnership documents, will typically provide evidence of an investment entity’s business purpose. Further evidence may include the manner in which the entity presents itself to other parties (such as potential investors or potential investees); for example, an entity may present its business as providing medium-term investment for capital appreciation. In contrast, an entity that presents itself as an investor whose objective is to jointly develop, produce or market products with its investees has a business purpose that is inconsistent with the business purpose of an investment entity, because the entity will earn returns from the development, production or marketing activity as well as from its investments (see paragraph B85I ).

B85C 7 An investment entity may provide investment-related services (eg investment advisory services, investment management, investment support and administrative services), either directly or through a subsidiary, to third parties as well as to its investors, even if those activities are substantial to the entity, subject to the entity continuing to meet the definition of an investment entity.

B85D An investment entity may also participate in the following investment-related activities, either directly or through a subsidiary, if these activities are undertaken to maximise the investment return (capital appreciation or investment income) from its investees and do not represent a separate substantial business activity or a separate substantial source of income to the investment entity:

(b)

providing financial support to an investee, such as a loan, capital commitment or guarantee.

B85E 8 If an investment entity has a subsidiary that is not itself an investment entity and whose main purpose and activities are providing investment-related services or activities that relate to the investment entity’s investment activities, such as those described in paragraphs B85C–B85D, to the entity or other parties, it shall consolidate that subsidiary in accordance with paragraph 32. If the subsidiary that provides the investment-related services or activities is itself an investment entity, the investment entity parent shall measure that subsidiary at fair value through profit or loss in accordance with paragraph 31 .

Exit strategies

B85F An entity’s investment plans also provide evidence of its business purpose. One feature that differentiates an investment entity from other entities is that an investment entity does not plan to hold its investments indefinitely; it holds them for a limited period. Because equity investments and non-financial asset investments have the potential to be held indefinitely, an investment entity shall have an exit strategy documenting how the entity plans to realise capital appreciation from substantially all of its equity investments and non- financial asset investments. An investment entity shall also have an exit strategy for any debt instruments that have the potential to be held indefinitely, for example perpetual debt investments. The entity need not document specific exit strategies for each individual investment but shall identify different potential strategies for different types or portfolios of investments, including a substantive time frame for exiting the investments. Exit mechanisms that are only put in place for default events, such as a breach of contract or non- performance, are not considered exit strategies for the purpose of this assessment.

B85G Exit strategies can vary by type of investment. For investments in private equity securities, examples of exit strategies include an initial public offering, a private placement, a trade sale of a business, distributions (to investors) of ownership interests in investees and sales of assets (including the sale of an investee’s assets followed by a liquidation of the investee). For equity investments that are traded in a public market, examples of exit strategies include selling the investment in a private placement or in a public market. For real estate investments, an example of an exit strategy includes the sale of the real estate through specialized property dealers or the open market.

B85H An investment entity may have an investment in another investment entity that is formed in connection with the entity for legal, regulatory, tax or similar business reasons. In this case, the investment entity investor need not have an exit strategy for that investment, provided that the investment entity investee has appropriate exit strategies for its investments.

Earnings from investments

B85I An entity is not investing solely for capital appreciation, investment income, or both, if the entity or another member of the group containing the entity (ie the group that is controlled by the investment entity’s ultimate parent) obtains, or has the objective of obtaining, other benefits from the entity’s investments that are not available to other parties that are not related to the investee. Such benefits include:

(c)

eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the group (profits or losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full). Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements. Ind AS12, Income Taxes , applies to temporary differences that arise from the elimination of profits and losses resulting from intragroup transactions.

Uniform accounting policies

B87 If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to that group member’s financial statements in preparing the consolidated financial statements to ensure conformity with the group’s accounting policies.

Measurement

B88 An entity includes the income and expenses of a subsidiary in the consolidated financial statements from the date it gains control until the date when the entity ceases to control the subsidiary. Income and expenses of the subsidiary are based on the amounts of the assets and liabilities recognised in the consolidated financial statements at the acquisition date. For example, depreciation expense recognised in the consolidated statement of profit and loss after the acquisition date is based on the fair values of the related depreciable assets recognised in the consolidated financial statements at the acquisition date.

Potential voting rights

B89 When potential voting rights, or other derivatives containing potential voting rights, exist, the proportion of profit or loss and changes in equity allocated to the parent and non-controlling interests in preparing consolidated financial statements is determined solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights and other derivatives, unless paragraph B90 applies.

B90 In some circumstances an entity has, in substance, an existing ownership interest as a result of a transaction that currently gives the entity access to the returns associated with an ownership interest. In such circumstances, the proportion allocated to the parent and non-controlling interests in preparing consolidated financial statements is determined by taking into account the eventual exercise of those potential voting rights and other derivatives that currently give the entity access to the returns.

B91 Ind AS 109 does not apply to interests in subsidiaries that are consolidated. When instruments containing potential voting rights in substance currently give access to the returns associated with an ownership interest in a subsidiary, the instruments are not subject to the requirements of Ind AS 109. In all other cases, instruments containing potential voting rights in a subsidiary are accounted for in accordance with Ind AS 109.

Reporting date

B92 The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements shall have the same reporting date. When the end of the reporting period of the parent is different from that of a subsidiary, the subsidiary prepares, for consolidation purposes, additional financial information as of the same date as the financial statements of the parent to enable the parent to consolidate the financial information of the subsidiary, unless it is impracticable to do so.

B93 If it is impracticable to do so, the parent shall consolidate the financial information of the subsidiary using the most recent financial statements of the subsidiary adjusted for the effects of significant transactions or events that occur between the date of those financial statements and the date of the consolidated financial statements. In any case, the difference between the date of the subsidiary’s financial statements and that of the consolidated financial statements shall be no more than three months, and the length of the reporting periods and any difference between the dates of the financial statements shall be the same from period to period.

Non-controlling interests

B94 An entity shall attribute the profit or loss and each component of other comprehensive income to the owners of the parent and to the non-controlling interests. The entity shall also attribute total comprehensive income to the owners of the parent and to the non- controlling interests even if this results in the non-controlling interests having a deficit balance.

B95 If a subsidiary has outstanding cumulative preference shares that are classified as equity and are held by non-controlling interests, the entity shall compute its share of profit or loss after adjusting for the dividends on such shares, whether or not such dividends have been declared.

Changes in the proportion held by non-controlling interests

B96 When the proportion of the equity held by non-controlling interests changes, an entity shall adjust the carrying amounts of the controlling and non-controlling interests to reflect the changes in their relative interests in the subsidiary. The entity shall recognise directly in equity any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received, and attribute it to the owners of the parent.

Loss of control

B97 A parent might lose control of a subsidiary in two or more arrangements (transactions). However, sometimes circumstances indicate that the multiple arrangements should be accounted for as a single transaction. In determining whether to account for the arrangements as a single transaction, a parent shall consider all the terms and conditions of the arrangements and their economic effects. One or more of the following indicate that the parent should account for the multiple arrangements as a single transaction:

(d)

recognise any resulting difference as a gain or loss in profit or loss attributable to the parent.

B99 If a parent loses control of a subsidiary, the parent shall account for all amounts previously recognised in other comprehensive income in relation to that subsidiary on the same basis as would be required if the parent had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or liabilities, the parent shall reclassify the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses control of the subsidiary. If a revaluation surplus previously recognised in other comprehensive income would be transferred directly to retained earnings on the disposal of the asset, the parent shall transfer the revaluation surplus directly to retained earnings when it loses control of the subsidiary.

Accounting for a change in investment entity status

B100 When an entity ceases to be an investment entity, it shall apply Ind AS 103 to any subsidiary that was previously measured at fair value through profit or loss in accordance with paragraph 31. The date of the change of status shall be the deemed acquisition date. The fair value of the subsidiary at the deemed acquisition date shall represent the transferred deemed consideration when measuring any goodwill or gain from a bargain purchase that arises from the deemed acquisition. All subsidiaries shall be consolidated in accordance with paragraphs 19 – 24 of this Ind AS from the date of change of status.

B101 When an entity becomes an investment entity, it shall cease to consolidate its subsidiaries at the date of the change in status, except for any subsidiary that shall continue to be consolidated in accordance with paragraph 32 . The investment entity shall apply the requirements of paragraphs 25 and 26 to those subsidiaries that it ceases to consolidate as though the investment entity had lost control of those subsidiaries at that date.

Appendix C

References to matters contained in other Indian Accounting Standards

This Appendix is an integral part of the Ind AS .

1 Appendix A, Distribution of Non-cash Assets to Owners contained, in Ind AS 10 , Events after the Reporting Period, makes reference to this Standard also.

2 Appendix A, Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds, contained in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets , makes reference to this Standard also.

Appendix 1

Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 110 and the corresponding International Financial Reporting Standard (IFRS) 10, Consolidated Financial Statements, issued by the International Accounting Standards Board.

Comparison with IFRS 10, Consolidated Financial Statements

1 IFRS 10 requires all investments to be measured at fair value to qualify for the exemption from consolidation available to an investment entity. Since, Ind AS 40, Investment Properties requires all investment properties to be measured at cost initially and cost less depreciation subsequently, sub- paragraph (a) of B85L have been deleted as this deal with investment property measured at fair value which is not relevant in the Indian context.

2 Different terminology is used, as used in existing laws eg, the term ‘balance sheet’ is used instead of ‘Statement of financial position’ and ‘Statement of profit and loss’ is used instead of ‘Statement of comprehensive income’.

3 Appendix C of IFRS 10 dealing with effective date, transition and withdrawal of other IFRSs has not been included in Ind AS 10 , due to the following reasons:

(i)

Effective date is not relevant as the date of application will be notified under the Companies Act.

(ii)

Transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards , corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.

(iii)

Paragraphs dealing with withdrawal of other IFRSs are not relevant.

4 9 Following paragraph numbers appear as ‘Deleted’ in IFRS 10. In order to maintain consistency with paragraph numbers of IFRS 10, the paragraph numbers are retained in Ind AS 110:

(i)

Paragraph 4(b)

(ii)

Paragraph 4(c)

Footnotes