What Is a Subsidiary in Group Accounts?

A subsidiary is an entity that is controlled by another entity, the parent. Under IFRS 10, control — not a simple headcount of shares — is the test that decides whether you consolidate. Getting this definition right is the foundation of every consolidation question in FR and SBR.

What does control actually mean?

IFRS 10 says an investor controls an investee when it has all three of the following:

• Power over the investee — usually the ability to direct the relevant activities, most often through a majority of voting rights.
• Exposure, or rights, to variable returns from its involvement.
• The ability to use its power to affect those returns.

More than 50% of the voting rights normally gives control, but control can exist below 50% (for example, through contractual arrangements or dispersed other shareholdings) and can be absent above 50% where another party holds real power.

How is a subsidiary accounted for?

A subsidiary is fully consolidated: the parent adds 100% of the subsidiary's assets, liabilities, income and expenses to its own, line by line, then removes the cost of investment against the subsidiary's equity and recognises goodwill and a non-controlling interest for the share it does not own.

Contrast this with an associate (significant influence, equity accounted) or a joint venture — the level of influence dictates the accounting method, so always justify the classification before you start the numbers.

In the exam, examiners reward the candidate who states the control test and applies it to the scenario before crunching the consolidation. The quickest way to see whether your working scores is to mark a full consolidation answer against the official ACCA marking scheme — The 50% Club shows you exactly which method and own-figure marks you earned.