ACT305 Corporate Accounting for Nagil and Struggle Ltd

Bill Handy, The finance director of Northern Australia Global Investments Ltd (NAGIL), is unsure whether he should consolidate some of the investments that the company owns. He has asked your advice as business adviser to NAGIL. The details of the investments are as follows:

(a) NAGIL had provided a loan to Struggle Ltd (SL) some years ago. When it looked as if SL would be unable to repay the loan it was converted into equity which gave NAGIL a 70% holding in SL. SL continues to have a substantial accumulated losses balance and the company’s results have been consolidated with NAGIL for some time. NAGIL does not take an active role in the day to day operations of SL as it has no directors on the board and it takes no part in the operating or financing decisions of the company.

(b) NAGIL has also provided a loan to the Very Big Company Ltd (VBCL). Unfortunately due to an industrial economic downturn the VBCL has failed to meet its loan repayments as required by the loan contract. The board of NAGIL is concerned that not only would the VBCL continue to have problems but also that the whole of the loan would become unrecoverable. The board of VBCL has agreed, as part of a bailout package, that NAGIL would take charge of VBCL’s finances for the next four years. The NAGIL deputy chief finance officer would control all payments made by VBCL and no payments would be made without prior approval. NAGIL does not have board representation on VBCL which is appointed by the VBCL shareholders.

(c) The Medium Sized Company Ltd (MSCL) is part funded by NAGIL, which owns 50% of the shares, and by Sharp Players Ltd (SPL) which owns the other 50%. The votes of the ordinary shares in the annual general meetings and the board representation are shared equally between NAGIL and SPL. SPL and NAGIL have agreed that NAGIL will provide the finance on a standard commercial basis with the loan being secured by a mortgage on MSCL’s property. The agreement also stipulates that SPL will provide the necessary managerial and entrepreneurial expertise in return for a management fee. The management fee will be paid out of ASCL’s net profits after providing for all NAGIL’s loan interest payments. Where MSCL does not make a profit the interest payments will still take place but no management fee will be paid.

(d) Tom and Marjory Legless are founders of CrocsRUs an adventure travel company. They both sit on the board and own 60 per cent of the shares. They have recently retired from actively running the company and have sold the other 40 per cent of the shares to NAGIL who manages the company on their behalf, holding the other three seats on the board. Although Tom and Marjory keep a close eye on the business they let NAGIL make the major decisions.

Required

Write a report to Bill, advising him how the control requirements of AASB 10 apply in each of the above investments. State, for each investment, where the control rests, citing and explaining how the relevant paragraphs of AASB10 apply, and whether Bill should include the results of the investments within the consolidated accounts explaining the reasons for your decision.

The report should take the format of a formal business report, written by your firm with yourself as lead author. Marks will be awarded for presentation style and an appropriate business format.

Section a

According to the case, NAGIL ltd had given an advance to Struggle Ltd (SL) which was later on changed over to value subsidize at the last was not able pay the same. This gave the organization a 70% holding in the matter of Struggle ltd. According to the arrangements of Para 5 of AASB 10, speculator will decide if the same is parent organization based on control which the busine

The case demonstrates that NAGIL ltd isn't effectively associated with the everyday business of the organization and furthermore not in choices of the business and in this manner the administration of the organization ought not include such interests in the solidification of the business.

Part b

According to the case which is gives, NAGIL has given credit to Very Big Company ltd (VBCL) amid the period. The administration of NAGIL has not made an interest in the offers of the organization of VBCL however has given an advance and VBCL has not possessed the capacity to meet the installment prerequisites of the advance and in this way a bailout bundle is started according to the organization can't be make any installments except if the same is endorsed by NAGIL. This isn't an interest in the value offers of the business and along these lines the same can't be shrouded in AASB 10 as NAGIL can't be considered as a parent organization of VBCL. Along these lines, the administration of NAGIL ought to think about the same as credit for the business.

Part c

The case which is given identifies with the organization of Medium Sized Company Ltd (MSCL) which is a backup of both NAGIL and Sharp Players Ltd (SPL). Both the organizations hold break even with offer of possession in the business and furthermore gives back on square with premise to the organization. According to the arrangements which is expressed in ASSB 10, Para 9 expresses that on the off chance that an investee is controlled by two speculators together than the same can't be held to be controlled by any one business and in this way both the organizations needs to represent the premium which it has in the investee(Aasb.gov.au. 2018).

On account of MSCL, the administration NAGIL needs to just think about the enthusiasm on advances and the administration expenses which is to be paid in the event that the organization can produce benefits for the period. If there should be an occurrence of misfortunes, the administration of MSCL just needs to acquire intrigue costs and not the administration expenses to the business.

Part d

The case which is given in the appraisal demonstrates that the administration of NAGIL ltd holds around 40% of property in the matter of CrocsRUs and the other 60% is held by the proprietors. The case gives that the administration of the organization is dealt with by NAGIL and furthermore all real choices are taken by them too. According to the arrangements of ASSB 10, Para 7 gives that so as to a business to be responsible for the investee, the business ought to have a control over the investee, ought to have variable rights on returns of the business which is for dynamic irritate in the business. and furthermore, the capacity to utilize the control over the investee keeping in mind the end goal to influence the profits of the business. Every one of the three conditions need to fulfill for the business to have control.

On account of CrocsRUs, the administration of NAGIL have the authority over the business and furthermore takes the real choices and thusly they have to solidify the interests to be decided sheet.

Reference

Aasb.gov.au. 2018. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf [Accessed 27 Sep. 2018].