Explain concept of control according to financial reporting

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Reference no: EM131293645

A Ltd, B Ltd and C Ltd owned 60%, 20% and 20%, respectively, of the voting shares of X Ltd. There were ten members on the board of directors of X Ltd. A shareholder with 10% shareholding is allowed to appoint one board director in X Ltd. These ten directors were responsible for designing and implementing the financial and operating policies of X Ltd.

A Ltd, B Ltd and C Ltd signed a shareholders’ agreement which gave B Ltd the option to acquire more shares at any time for a fixed price. If B Ltd exercised these share options, it would increase its equity interest and voting rights in X Ltd to 60%. Consequently, the equity interest and voting rights of A Ltd and C Ltd would be reduced to 30% and 10%, respectively.

Required:

Explain the concept of control according to financial reporting standards and discuss whether A Ltd, B Ltd, or C Ltd has control of X Ltd.

Reference no: EM131293645

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