2. Indirect Subsidiary Control When a parent controls a subsidiary which in turn controls other firms, a “pyramid” or “father-son-grandson” relationship exists “ Father ” 75 % Ownership “ Son ” 80 % ownership “ Grandsons” 7-
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5. Indirect Control -- Example 7- The following data is from the individual company financial records:
6. Indirect Control – Example 7- Following the consolidation steps to determine Midway’s realized income:
7. Indirect Control -- Example 7- Then combine Top Company’s income with Midway’s realized income: Midway’s realized income as calculated in the last step.
8. Indirect Control -- Example 7- Lastly, using the calculation of income from the previous calculations, determine the noncontrolling interest: Bottom and Midway’s individual incomes as calculated in the first step.
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10. Indirect Subsidiary Control - Connecting Affiliation Side Company 45% owned The combination of the parent’s DIRECT ownership and INDIRECT ownership can result in control of a subsidiary. 7- Low Company 70% owned 30% owned High Company
11. Indirect Subsidiary Control - Connecting Affiliation In this case, High controls Side directly with 70% ownership, and controls Low indirectly with 61.5% effective ownership. 30% +(70% x 45%) 7- 45% owned Low Company Side Company 70% owned 30% owned High Company
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17. IFRS and Indirect Control Under GAAP , the consolidation process begins at the lowest level in the ownership structure and works its way up . Under IFRS , firms may apply a direct method that consolidates each controlled subsidiary without regard to an intermediate controlling affiliate. 7-
