Question
FXL Pty Ltd is a private company with many strategic investments. The finance director is concerned that FXL might be required to consolidate some of
FXL Pty Ltd is a private company with many strategic investments. The finance director is concerned that FXL might be required to consolidate some of these investments, pursuant to AASB 10. Details of the investment relationships are as follows: a) FXL owns 50 per cent of A Pty Ltd with the other 50 per cent owned by B Pty Ltd. Both companies have equal voting rights and an equal share of seats on the board of directors. Under an agreement with B Pty Ltd, FXL supplies the finance to the company on normal commercial terms. The loan is fully secured against the assets of the company. B Pty Ltd provides the management and entrepreneurial flair to A Pty Ltd. Under the agreement forged, B Pty Ltd will receive a management fee in respect of the net profits of A after allowing for interest payments on the FXL loan. In times of no profits, the interest payments will still be met, but B will not receive any remuneration. b) FXL holds 75 per cent interest in JIB Pty Ltd. The interest was created when FXL 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. FXL is a passive investor, having no seats on the board of directors and no say in the net financing or operating decisions of JIB. c) FXL has a 50.1 per cent interest in LBX Pty Ltd but has no seats on the board of directors. Required: Advise the finance director of FXL of the requirements of AASB 10 in respect of the control criterion. For each of the above investments indicate whether FXL needs to prepare consolidated statements.
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