Question 2: Consolidation: Controlled Entities

RamGopal Co is an investee company which has annual general meetings where

decisions to direct the relevant activities are made. The next scheduled annual general

meeting is in eight months. However, shareholders that individually or collectively hold

at least 5 per cent of the voting rights can call a special meeting to change the existing

policies over the relevant activities, but a requirement to give notice to the other

shareholders means that such a meeting cannot be held for at least 30 days. Policies over

the relevant activities can be changed only at special or scheduled annual general

meetings.

Required:

Discuss whether the following investor companies have the current ability to direct the

relevant activities of RamGopal Co. Give reasons to support your answer.

a) KrisnGopal Co holds majority of the voting rights in RamGopal Co

b) ShyamGopal Co holds a substantive option to acquire majority of shares in

RamGopal Co that is exercisable in 25 days and is deeply out of money.

c) ShiuGopal Co is party to a forward contract to acquire majority of shares in

RamGopal Co. The forward contract's settlement date is in 25 days.

d) MohanGopal Co is party to a forward contract to acquire majority of shares in

RamGopal Co, with no other related rights over RamGopal Co. The forward

contract's settlement date is in six months.