Control Requirements Of AASB 10 For Investments

Investments in NAGIL

a)

b)

Executive Summary

In this report, it will be evaluated whether NAGIL is required to prepare the consolidated financial statement for the companies given in the case study.

Several legislations from AASB 10 will be taken in to this analysis in order to figure out whether it is needed to prepare the consolidated financial statement (Aburous 2016).

In the last segment, it will be explained with the reference from the appropriate legislations taken from AASB 10 whether it is required to prepare the consolidated financial statements for these companies or not (Rutledge et al. 2016).

In this report, certain investment that is owned by Northern Australia Global Investment need to analyze with a purpose of figuring out the consolidation consequences of those investments. As an investment agency, the company has been engaged with several firms in investment purposes. In the given consequences, each of these investments cannot be considered as a profitable investment and it is certain that various consequences will be emerged from these investments. The consolidation status of each of these investments is being analyzed with reference to the AASB 10 and the legislations stated in various section of the act for each kind of investments will be explained.

Overview of the Issue

For the first segment, it is required to figure out the consolidation status of the investment made by NAGIL in SL and the consequences, which were created for the continuous loss of the company. In the next case, it is required to figure out the consequences of NAGIL for taking charges of VBCL as they failed to repay the loan amount allocated to them. Coming up next, it is required to figure out what the consolidation consequences will be in case no profit is generated from the business of MSCL. In the last instance, it is asked to figure out the consolidation consequences of NAGIL for managing the business of CrossRU (Sapozhnikova and Mohammed 2014).

In paragraph 1 of AASB 10, it is stated that an entity should disclose the consolidated financial statement of it if the entity is liable for controlling the business of two or more companies (Uyar 2016).

As it is stated in the paragraph 5 of AASB 10, the investor should disclose the actual status of the investee and the overall control gained by the controller over the entity. In paragraph 6 and 7 of AASB 10, it is stated about the control of the investor that they can imply over the investee. According to this paragraph, the investor can control over the investee in case of the investor do have the power over the investee, can affect the amount of return of the investee or by having the right or exposure over the variable return of the entity. In paragraph 9 of AASB 10, it is stated that the investor cannot direct over the investee if another separate investor is associated with the administrative activities of the investee (Ni and Van Wart 2015). In such cases, the interest gained from the investee should be accounted by investor in accordance with the legislations which are stated in the standards like AASB 128, AASB 9 and AASB 11 (Raiborn and Sivitanides 2015).

AASB 10 Control Requirements Evaluation

In this segment, it is required to consider the power of an investor over the investee as per the legislations stated in AASB 10. In paragraph 10, it is stated that having the right or the exposure of being able to direct the relevant activities of the entity which can affect the return is considered as a power. This power can be obtained directly or indirectly by the investor. In paragraph 13 of AASB 10, it is stated that if the right to control the relevant activities of the entity is being divided between two investors, the power of the entity will be obliged to the one who has the most significant affect over the return of the investee. In accordance with this, it should be mentioned in this regard that the legislation stated in paragraph 16 of AASB 16, there can be several beneficial of an investee, but the major power of the entity is controlled by one investor. The entities which work as a non controlling holder of the entity only share the amount of profit of the investee (Maas et al. 2016).

a)

In the first case, it can be seen that NAGIL has allocated a loan to SL. But for some reason, SL was unable to pay the loans. Thus NAGIL took over 70% of the shares of the company. But this only allowed NAGIL to get a fair amount of profit (or loss) of the company as the investor did not participated in the governing body of the company. As stated in the paragraph 7 of AASB 10, as the investor do not have the authority to control the relevant activates of the firm, the preparation of the consolidated financial statement is not required in this case (Aburous 2016).

b)

For the next case, it is required to figure out whether NAGIL needs to prepare the consolidated financial statement of the firm. In this case, the entity has taken over all the controls of VBCL in terms of all the financial decisions of the company for next four years. The company has the power, right and exposure over the investee and thus, in accordance with AASB 10, the company needs to prepare the consolidated statement for this company (Kushnirenko 2017).

c)

In the next segment, it is required to consider the consolidation consequences of NAGIL in case of MSCL. As it is stated in the case study, the business of MSCL is governed by two separate entities, which are NAGIL and SPL. On the basis of a agreement signed between them, it is stated that NAGIL will provide all the finances required in the business on a basis of loan and SPL will provide the necessary administrative expertises in return of a management fee. In this case, it can be seen that SPL has more administrative power in terms of controlling the business of MSCL. Thus, as it is stated in paragraph 9 of AASB 10, NAGIL cannot claim the control over MSCL and thus, will not have to prepare any consolidated financial statement.

d)

In the last case, though NAGIL does not hold the majority of shares in CrocsRU, they take all of the administrative decisions. Though Tom and Marjory watch over the business, but in accordance with paragraph 9 of AASB 10, the control of CrocsRU will be implemented upon NAGIL and the company will have to disclose the necessary data regarding the investee in their consolidated financial statement (Duff 2016).

Conclusion

From the given analysis, it can be seen that the company needs to prepare the consolidated financial statement for VBCL and CrocsRU as the control of these investees lies in the hands of NAGIL. But in case of SL and MSCL, the company do not have to prepare the consolidated financial statement as the control of these two companies are not obliged by NAGIL.

Reference

Aburous, D., 2016. Understanding cultural capital and habitus in Corporate Accounting: A postcolonial context. Spanish Journal of Finance and Accounting/Revista Española de Financiación y Contabilidad, 45(2), pp.154-179.

Bhasin, M.L., 2015. Corporate accounting fraud: A case study of Satyam Computers Limited.

Duff, A., 2016. Corporate social responsibility reporting in professional accounting firms. The British Accounting Review, 48(1), pp.74-86.

Kushnirenko, O., 2017. Tax-Based Calculations Applied by Agricultural Enterprises as Object of Accounting and Control. Accounting and Finance, (2), pp.27-35.

Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment, management accounting, control, and reporting. Journal of Cleaner Production, 136, pp.237-248.

Ni, A. and Van Wart, M., 2015. Corporate Social Responsibility: Doing Well and Doing Good. In Building Business-Government Relations (pp. 175-196). Routledge.

Raiborn, C. and Sivitanides, M., 2015. Accounting issues related to Bitcoins. Journal of Corporate Accounting & Finance, 26(2), pp.25-34.

Rutledge, R.W., Karim, K.E. and Kim, T., 2016. The FASB’s and IASB’s New Revenue Recognition Standard: What Will Be the Effects on Earnings Quality, Deferred Taxes, Management Compensation, and on Industry?Specific Reporting?. Journal of Corporate Accounting & Finance, 27(6), pp.43-48.

Sapozhnikova, N.G. and Mohammed, E.B.K., 2014. Informatsiya ob ekologicheskoi deyatel’nosti v korporativnom uchete i otchetnosti [Information on environmental performance in corporate accounting and reporting]. Mezhdunarodnyi bukhgalterskii uchet= International Accounting, (15), pp.22-29.

Uyar, A., 2016. Evolution of corporate reporting and emerging trends. Journal of Corporate Accounting & Finance, 27(4), pp.27-30.

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