Question
ABC Pty Ltd (ABC) is a private company with many strategic investments. The CFO is concerned that he might be required to consolidate some of
ABC Pty Ltd (ABC) is a private company with many strategic investments. The CFO is concerned that he might be required to consolidate some of these investments, pursuant to AASB 10. Details of the investment relationships are as follows:
ABC operate as the trustee company for the ABC trading trust.The trust is a discretionary trust with the nominated beneficiaries being the directors of ABC. These directors are Mr Frank, Mrs Ada and Mr Leonard. Over the years. the trust has distributed its income in the following proportions
Mr Frank 70
Mrs Ada 20
Mr Leonard 10
Under the terms of the trust deed, ABC has complete control over the operating and financing decisions of the trust
ABC hold 75 per cent interest 1n JIB Pty Ltd (JIB). The interest was created when ABC converted a substantial loan it made to JIB into equity at the invitation of JIB when JIB began to trade poorly and recovery of the loan seemed uncertain. JIB has a large deficiency in net assets and has been consolidated for many years. ABC is a passive investor, having no seats on the board of directors and no say in the financing or operating decisions or JIB.
Required:
You are required to advise the CFO of ABC Pty Ltd of the requirements of AASB 10 in respect of the control criterion. For each of the above investments indicate where the control rests and whether or not consolidation will be required. Provide your reasons with referring to the details of relevant standards.
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