The following questions ask you to analyse the issues and explain whether a parent

subsidiary company situation exists and if consolidated financial statements need to be

prepared.

$1)$Silver Ltd is a major financing company whose interest in investing is based on achieving a

satisfactory return on investment $.$Silver Ltd does net get involved in the management of its

investments $.$ If the investments are not managed properly Silver sells its shares in that

investee and selects a more profitable investee to invest in $.$ It recently held a $35\%$ interest in

Bowerbird Ltd as well as purchasing a considerable amount of its convertible debt $.$Recently

Bowerbird was having some cash flow difficulties and persuaded Bowerbird to convert some

of the convertible debt to equity so that it could ease the effects of interest payments on cash

flow. As a result Silver$$s equity interest in Bowerbird increased to $51\%.$ Silver still wanted

to remain as a passive investor with no changes in the directors on the Board of Bowerbird

Ltd $.$These directors were appointed by the holders of the $48\%$ not held by Silver Ltd $.$

$2)$Brush Ltd holds $30\%$ of the issued shares of Turkey Ltd $.$The other shareholders come from

mixed backgrounds but each holds on average $10\%$ of the shares in Turkey Ltd $.$ There are

seven directors in Turkey Ltd $.$ Four of these were appointed by Brush Ltd $.$ The other three

directors were appointed by three of the other shareholders who have an interest in the

management of the company $.$Most of the remaining shareholders shareholders live outside

Australia and rarely attend board meetings unless they have other business to attend to at the

same time as the board meetings are held $.$