Trident Ltd. holds 85% of the equity shares of Ganga Ltd. Trident Ltd. also directly holds 12% of the equity shares of Yamuna Ltd. Additionally,…

(i) Relationship between Trident Ltd. and Ganga Ltd. Since Trident Ltd. holds 85% (i.e., more than 50%) of the equity shares of Ganga Ltd., Ganga Ltd. is a subsidiary of Trident Ltd., and Trident Ltd. is the parent of Ganga Ltd. (ii) Determination of Relationship with Yamuna Ltd. For determining whether an investee is an associate, the total of the investing company's direct holding and its indirect holding through subsidiaries is considered: Particulars % Holding Direct holding of Trident Ltd. in Yamuna Ltd. 12% Indirect holding — through Ganga Ltd. (a subsidiary) in Yamuna Ltd. 9% Total holding (direct + indirect) for determining relationship 21% Since the total direct and indirect holding of Trident Ltd. in Yamuna Ltd. (21%) exceeds 20%, Yamuna Ltd. is an associate of Trident Ltd., as per AS 23. (iii) Effective Holding for Consolidation Purposes While 21% is used to determine the relationship (i.e., whether significant influence exists and Yamuna Ltd. qualifies as an associate), the actual effective shareholding to be used for consolidation purposes (e.g., for applying the equity method) is computed differently — it reflects Trident Ltd.'s true economic/proportionate interest: Effective holding = Direct holding + (Parent's holding in subsidiary × Subsidiary's holding in investee) = 12% + (85% × 9%) = 12% + 7.65% = 19.65% The 21% used to establish the relationship is a simple aggregation of direct and indirect holdings, used only as a threshold test (≥20%) to determine significant influence. However, since Ganga Ltd. itself is only 85% owned by Trident Ltd. (not 100%), only 85% of Ganga Ltd.'s 9% stake in Yamuna Ltd. is effectively/economically attributable to Trident Ltd. Hence, for consolidation purposes, the proportionate effective interest of 19.65% (not the flat 21%) should be used.