Difference between control over and significant influence

K

kseniaru

New member
Joined
Jun 9, 2008
Messages
0
Reaction score
0
Please, help me understand difference between ‘deemed to have control over a company or significant influence.
 
For purposes of the exam, control generally means you own over 50% of the company’s equity and significant influence means you own between 20% and 50%. While reading a vignette, you have to look for certain key words in relation to board structure, voting rights, and other key factors. For example, if a Company A owns 55% of Company B but has no board representation, can you really say Company A controls Company B? Probably not. Signs of signifcant influence include representation on the board, participation in policy making and material transactions between the investor and the investee.
 
What about accounting and ratios? For example, in what case do we count 100% of company’s B sales, revenue, income, etc?
 
kseniaru Wrote:
——————————————————-
> What about accounting and ratios? For example, in
> what case do we count 100% of company’s B sales,
> revenue, income, etc?
If the company owns over 50%, it is deemed to have control and will use full consolidation.
 
I believe Assets, Liabilities and Equity should all be higher when Consoildating. However, net income should be the same under either method but other portions of the income statement (revenues, COGS etc) will be higher under the Consolidating method.
Have to check my book on that tho. I drew up a cheat cheat in the margins. The CFAI EOC questions are really helpful in learning how it Effects the ratios.
 
JP_RL_CFA Wrote:
——————————————————-
> I believe Assets, Liabilities and Equity should
> all be higher when Consoildating. However, net
> income should be the same under either method but
> other portions of the income statement (revenues,
> COGS etc) will be higher under the Consolidating
> method.
>
> Have to check my book on that tho. I drew up a
> cheat cheat in the margins. The CFAI EOC
> questions are really helpful in learning how it
> Effects the ratios.
im pretty sure only A and L are higher. Equity is the same under all the methods.
So is net income
 
urymoto1 Wrote:
——————————————————-
> JP_RL_CFA Wrote:
> ————————————————–
> —–
> > I believe Assets, Liabilities and Equity should
> > all be higher when Consoildating. However,
> net
> > income should be the same under either method
> but
> > other portions of the income statement
> (revenues,
> > COGS etc) will be higher under the
> Consolidating
> > method.
> >
> > Have to check my book on that tho. I drew up a
> > cheat cheat in the margins. The CFAI EOC
> > questions are really helpful in learning how it
> > Effects the ratios.
>
> im pretty sure only A and L are higher. Equity is
> the same under all the methods.
> So is net income
Equity is higher under full consolidation, since minority interest is now included as a part of equity per SFAS 160.
 
im pretty sure in the Schweser books, that it still says that ROE and ROI are the same under all 3 methods; therefore all yield the same equity and ni.
What you are saying is that this would no longer be the case; which is understandable given what you said about sfas 160.
Can you tell me where this can be found in Schweser, maybe i missed it
 
urymoto1 Wrote:
——————————————————-
> im pretty sure in the Schweser books, that it
> still says that ROE and ROI are the same under all
> 3 methods; therefore all yield the same equity and
> ni.
> What you are saying is that this would no longer
> be the case; which is understandable given what
> you said about sfas 160.
> Can you tell me where this can be found in
> Schweser, maybe i missed it
My Stalla guide points this out. Just checked the CFAI book, there’s no example to refer to.
 
…. think ….
“The devil” - significant influence
“The wife” - full control
hope it helps…
 
there r bascially 3 things: conrol, significant influence, and ownership . ownership is least important whereas control and significant influence are more important. one can have no control, but still influenece. this is my undersstanding……any thoughts
 
You must log in or register to reply here.
Back
Top