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Question 1.During the current year X Ltd has acquired the following investments in the shares issued by Y Ltd and Z Ltd: Y Ltd $120,000

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1.During the current year X Ltd has acquired the following investments in the shares issued by Y Ltd and Z Ltd:

Y Ltd $120,000 (40% of issued capital)

Z Ltd $117,000 (35% of issued capital)

X Ltd is unsure how to account for these investments and has asked you, as the auditor, for some professional advice. Specifically, X Ltd is concerned that it may need to prepare consolidated financial statements under IFRS 10. To help you, the company has provided the following information about the two investee companies:

Y Ltd

The remaining shares in this company are owned by a diverse group of investors each holding a small parcel of shares.

Historically, only a small number of shareholders attend the general meetings or question the actions of the directors.

X Ltd has nominated 3 new directors and expects that they will be appointed at the next AGM. The current board of directors has five members.

Z Ltd

The remaining shares in this company are owned by a small group of investors who each own approximately 15% of the issued shares. One of these shareholders is Y Ltd, which owns 17%.

The shareholders take a keen interest in the running of the company and attend all meetings.

Two of the shareholders, including Y Ltd, already have representatives on the board of directors who have indicated their intention of nominating for re-election.

Advice X Ltd as to whether, under IFRS 10, it controls Y Ltd and/or Z Ltd. Support your conclusion with justifications. Do you think your conclusion will change if the remaining shares in Y Ltd were owned by 3 institutional investors each holding 20%?

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