Concept of Control

Ord Ltd owns 40% of the shares of Derwent Ltd, and holds the only substantial block of shares in that entity, no other party owning more than 3% of the shares. The annual general meeting of Derwent Ltd is to be held in a months time.

Scenario 1: Ord Ltd will be able to elect a majority of Derwent Ltds board of directors as a result of exercising its votes as the largest holder of shares. As only 75% of shareholders voted in the previous years annual meeting, Ord Ltd may have the majority of the votes that are cast at the meeting.

Scenario 2: By obtaining the proxies of other shareholders and, after meeting with other shareholders who normally attend general meetings of Derwent Ltd, by convincing these shareholders to vote with it, Ord Ltd may obtain the necessary votes to have its nominees elected as directors of the board of Derwent Ltd, regardless of the attendance at the general meeting.

Required: Discuss the potential for Derwent Ltd being classified as a subsidiary of Ord Ltd in each separate scenario above, according to the requirement of AASB 10 Consolidation Financial Statements.