Discussion Questions During the current year. Jane Ltd paid $120,000 to acquire 40% of the ordinary shares issued by Doe Ltd. The remaining shares in Doe Ltd are owned by a diverse group of investors who each hold less than 2%. In the past few years, only a fourth of the shareholders attended the general meetings. These shareholders rarely questioned the actions of the directors. The current board of directors have 5 members, out of which three are retiring at the next annual general meeting. Jane Ltd has nominated three new directors to replace the ones that are retiring and expects that they will be appointed at the next annual general meeting In the same year, Jane Ltd paid $300,000 to acquire 35% of the ordinary shares issued by John Ltd. The remaining shares in John Ltd are owned by a small group of investors who each own approximately 15% of the issued shares. One of these shareholders. Doe Ltd owns 20%. The shareholders take a keen interest in the running of the company and attend all meetings. Two of the other shareholders, including Doe Ltd, already have representatives on the board of directors who have indicated their intention of nominating for election Required 1. Under AASB 10/IFRS 10, does Jane Ltd control Doe Ltd and/or John Ltd? Explain 2. If the remaining shares in Doe Ltd were owned by three institutional investors each holding 20%, would your conclusion be different? Explain 3. Consider your answers in the first two parts, which of the following is true? Jane Ltd may need to prepare consolidated financial statements in Part 1 only Jane Ltd may need to prepare consolidated financial statements in Part 2 only In both parts, Jane Ltd may need to prepare consolidated financial statements In both parts, Jane Ltd may not need to prepare consolidated financial statements III. IV. Practice Question Jane Ltd is a major Australian manufacturer of noise-cancelling earphones. One of its major competitors was Doe Ltd whose business was established by an American family over 20 years ago. It had won numerous awards for its designs and functionality. The recent model "Silent X" has been extremely popular among audiophiles. In order to expand its business as well as to increase its market power, Jane Ltd acquired on 1 July 2018 all the issued shares of Doe Ltd for $120 000. At this date, the equity of Doe Ltd was as follows: Share Capital Retained Earnings S54 000 36 000 All the identifiable assets and liabilities of Doe Ltd were recorded at amounts equal to their fair values except for the following Land Inventories Machinery (cost $100 000) Carrying Amount $80 000 12 000 82 500 Fair Value $90 000 16 000 94 000 The machinery's expected remanning useful life was 5 years with benefits being expected evenly over that period. The land was sold in September 2019 . Of the inventories, 90% was sold by 30 June 2019 and the rest by the end of the following financial year