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Explain whether a parent-subsidiary relationship exists

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Reference no: EM132885176

Question - Top Ltd is a major financing company that seeks a passive return on the investment and so does not get involved in the management of its investments. If an investee fails to earn a pre-determined return, Top Ltd sells its shares in that investee and searches for and selects a more profitable investee to invest in. It previously held a 30% interest in Spin Ltd as well as providing substantial convertible debt finance to that entity. In 2022, Spin Ltd experienced cash flow difficulties and persuaded Top Ltd to convert some of the convertible debt into equity so as to reduce the interest payments on cash flow. As a result, Top Ltd's equity interest in Spin Ltd increased to 52%. Top Ltd still wanted to remain as a passive investor, with no changes in the directors on the board of Spin Ltd. These directors were appointed by the holders of the 48% of shares not held by Top Ltd.

Explain whether a parent-subsidiary relationship exists and if so, which company is the parent and which is the subsidiary.

Reference no: EM132885176

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