Subsidiary or Associate? Tom Clendon the online ACCA SBR lecturer explains the difference!

Company A owns 40% of the shares in B. No other shareholder in B owns more than 2%. B has five directors of which A has appointed three.
Let’s use this example to see how we apply our knowledge of the definitions of a subsidiary and an associate in a practical situation.

[@kwameodoom1305]

Thank you very Tom. I wasn't wrong at last. Great video, clear explanations and good insights. I love it

[@tomclendonaccasbronlinelec7226]

Glad you enjoyed it

[@tamerakkad9129]

Excellent explanation 🎉

[@tomclendonaccasbronlinelec7226]

@@tamerakkad9129 THANK YOU - glad you found it useful

[@Alfadol21]

In some cases the company it doesn't have any share presents% but in fact have a control by management just, the point control is power!

[@tomclendonaccasbronlinelec7226]

If there is just POWER but no EXPOSURE to economic benefits, then I would not regard this as a subsidiary. IFRS 1O

[@tomclendonaccasbronlinelec7226]

and this very point came up in the March 23 exam!

[@AbcDef-gn9zq]

But what if we hold only 20% along with 3 out of 5 representations on the board .. will that mean that we have PEA ?

[@tomclendonaccasbronlinelec7226]

It becomes more subjective the smaller the holding as there is less exposure to variable returns and the increase risk in the other shareholders in B ganging up on A.
So it would be good to know more information.
The key takeaway is to move away from a fixation on numbers / % being the only factor in deciding whether there is control (sub) or significant influence (associate).