ACCA - Strategic Business Leader (P2)

Coate also sold 50% of a previously wholly owned subsidiary, Patten, to a third party, Manis.

Manis is in the same industry as Coate. Coate has continued to account for the investment in Patten as a subsidiary in its consolidated financial statements. The main reason for this accounting treatment was the agreement that had been made with Manis, under which Coate

would exercise general control over Patten's operating and financial policies. Coate has appointed three out of four directors to the board. The agreement also stated that certain decisions required consensus by the two shareholders.

Under the shareholder agreement, consensus is required with respect to: (i)Significant changes in the company's activities

(ii)Plans or budgets that deviate from the business plan

(iii) Accounting policies; acquisition of assets above a certain value; employment or dismissal of senior employees; distribution of dividends or establishment of loan facilities

Coate feels that the consensus required above does not constitute a hindrance to the power to control Patten, as it is customary within the industry to require shareholder consensus for decisions of the types listed in the shareholders' agreement.

Discuss how the above events should be accounted for in the individual or, as appropriate, the consolidated financial statements of Coate