Under IFRS 10, consolidation is required when an investor controls the investee, typically by having power over the investee, exposure to variable returns, and the ability to use power to affect returns.

Under IFRS 10, consolidation is required when an investor controls the investee, typically by having power over the investee, exposure to variable returns, and the ability to use power to affect returns.

• A. When the investor holds the majority of voting rights only.
• B. When the investor has significant influence but not control.
• C. When the investor controls the investee by power, exposure to variable returns, and ability to use power to affect returns.
• D. When the investor approves the budget but has no other rights.

Answer: (C)

Control under IFRS 10 means you have power over the investee, you’re exposed to variable returns from the investee, and you can use that power to affect the returns. Consolidation is required when all three parts are present, because that combination shows you can direct the investee’s relevant activities and stand to gain (or lose) from its outcomes, with the ability to influence those outcomes through your power. The best choice states these three elements together, which is why it’s correct. Power isn’t limited to holding a majority of voting rights; it can come from other arrangements that let you direct relevant activities. Returns must be variable and come from the investee, and you must have the ability to use your power to affect those returns. Simply having a budget approval right or having only significant influence (not control) does not meet the criteria for consolidation.

Control under IFRS 10 means you have power over the investee, you’re exposed to variable returns from the investee, and you can use that power to affect the returns. Consolidation is required when all three parts are present, because that combination shows you can direct the investee’s relevant activities and stand to gain (or lose) from its outcomes, with the ability to influence those outcomes through your power.

The best choice states these three elements together, which is why it’s correct. Power isn’t limited to holding a majority of voting rights; it can come from other arrangements that let you direct relevant activities. Returns must be variable and come from the investee, and you must have the ability to use your power to affect those returns. Simply having a budget approval right or having only significant influence (not control) does not meet the criteria for consolidation.