Case Study 12: Parent-subsidiary relationship (AASB10)
During the current financial period, Heckle Ltd acquired 40% of the ordinary shares of Jeckle Ltd. Under the company’s constitution, each share is entitled to one vote. On the basis of past experience, only 65% of the eligible votes are typically cast at the annual general meetings of Jeckle Ltd. No other shareholder holds a major block of shares in Jeckle Ltd. The directors of Heckle Ltd argue that they are not required under AASB 10/IFRS 10 to include Jeckle Ltd as a subsidiary in Heckle Ltd’s consolidated financial statements as there is no conclusive evidence that Heckle Ltd can control the relevant activities of Jeckle Ltd. The auditors of Heckle Ltd disagree, referring specifically to the votes cast in the past years.
Required
Provide a report to Heckle Ltd on whether it should regard Jeckle Ltd as a subsidiary in its
preparation of consolidated financial statements.
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