Part a
The main purpose of this report is analysing the relevant provisions of AASB 10 which is related to the consolidated financial statements of the business and the application of the same provisions in respect of the case study that is provided. In this assessment it is required to advise the finance director of Northern Australia Global Investments Ltd for the purpose of including investments that are made by the company, The various investments that are made by the company will be assessed as per the provisions of AASB 10 during the period.
As per the case study , NAGIL ltd has provided a loan to Struggle Ltd which was converted to equity as the latter company was unable to repay the liability. This provided the company a holding of 70% in the business of Struggle Ltd. According to the provisions of Para 5 of AASB 10, an investor needs to determine whether the same is a parent company on the basis of control, as per the business which have over the investee. As per para 7, control over a business is established when all the requisite conditions are met . These conditions include the power over the investee, exposure or rights to variable returns from the involvement in the business , the power to affect the returns which are made by the investee(Aasb.gov.au. 2018).
In this case study NAGIL ltd is not actively involved in the day to day operations of the company and also not in decisions of the business. Hence the management of the company should not involve such investments in the consolidation of the business.
As per the case study, NAGIL has provided loan to Very Big Company ltd ( VBCL) during the period. The management of NAGIL has not made an investment in the shares of VBCL. The management of NAGIL has not made an investment in the shares of the company of VBCL but has provided a loan . VBCL has not been able to meet the payment requirements of the loan and therefore a bailout package is initiated . This has been done as the company cannot make any payments unless the same is approved by NAGIL. This is not an investment in the equity shares of the company. Hence the same cannot be coveted in AAASB 10 as NAGIL cannot be considered as a parent company of VBCL. Therefore the management of NAGIL should consider the same as loan for the purpose of business(Carlin 2014.).
The case which is provided is related to the company of Medium Sized Company( MSCL). Thus company is a subsidiary of both NAGIL and Sharp Players Ltd( SPL). Both these companies hold an equal ownership in the business and also provides an equal source of finance to the company. As per the provisions of AASB 10 ,the para 9 states that ij case an investee is controlled by two investors together then the same cannot be controlled by any one business. Hence both the companies needs to only account for the interest which it has in the investee(Müller 2014).
Part B
In the case of MSCL, the management NAGIL needs to only consider the interest on loans and the management fees which is to be paid in case the company is able to generate profits for the period. In the case of losses, the management of MSCL only needs to incur interest expenses and not the management fees to the business.
The case which is provided in the assessment shows that the management of NAGIL ltd holds around 40 % of the holdings in the business of CrocsRUs and the other 60 percent is held by the owners . the case provides that the management of the company is handled by NAGIL and also how the major decisions are taken by the company as well. According to the provisions of AASB 10, para 7 provides that in order for a business to have control of the investee. The business should possess a power over the investee and should have variable rights on returns of the business which is considered for an active role on the business(Howieson 2013).
In the case of CrocsRUs the management of NAGIL has the control over the buiness and also takes the major decisions and therefore they need to consolidate those investments in the balance sheet.
Conclusion
The above discussion shows the various investment and loans that are provided to different businesses during this period. The assessment shows the application of the provisions of AASB 10 in order to determine whether the finance director should incorporate the transactions in the consolidated financial statements of the businesses. The assessment effectively deals with the reporting requirements of investment made in other businesses.
Reference & Bibliography:
Aasb.gov.au. 2018. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf [Accessed 11 Oct. 2018].
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Elliott, B., 2017. Financial Accounting and Reporting 18th Edition. Pearson Higher Ed
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