Barclay Ltd, Greenstreet Ltd, and Shah Ltd are three major shareholders of Jago Ltd, each owning 20%
Question:
Barclay Ltd, Greenstreet Ltd, and Shah Ltd are three major shareholders of Jago Ltd, each owning
20% of the voting shares in Jago Ltd. The remaining 40% of Jago Ltd's shares are held in small parcels
by a large number of individual passive investors.
Barclay Ltd holds call options that would entitle it to purchase from Greenstreet Ltd and Shah Ltd all
their shares held in Jago Ltd at a price of $6.60 per share. On 30 June 2022, Jago Ltd's shares are
trading at $6.00 on the stock exchange.
Under the constitution of Jago Ltd, if Jago Ltd's directors have acted in a manner contrary to the
shareholders' interests, Barclay Ltd has the right to remove those directors from Jago Ltd's board and
to call a special shareholders' meeting, to enable Jago Ltd's shareholders to elect new directors.
Past shareholders' meetings of Jago Ltd have generally been poorly attended. Apart from Barclay Ltd,
Greenstreet Ltd, and Shah Ltd, only several of the individual shareholders (collectively holding fewer
than 10% of shares) attended the annual general meeting of Jago Ltd last year.
Required:
Part (A): What is a reporting entity (i.e. accounting entity)? Identify any reporting entity that exists in this
scenario and explain what accounting method should be employed by a reporting entity.
Part (B): On 30 June 2022, for financial reporting purposes, what is the relationship that exists between
the investee and each of the investors? Your answer should address all relationships that are potentially
relevant (e.g., control, significant influence etc.). Your answer must be supported by references to specific
paragraphs in all relevant accounting standards. Your answer should address all of the relevant criteria in
the AASB accounting standards for determining each relationship.
Formatting requirements: Your answer should be divided into multiple sections and paragraphs. You
should use section headings (e.g., for each sub-question and each investor-investee relationship) to
clearly identify the structure of your essay. All answers must be provided in your own words.
Applying International Financial Reporting Standards
ISBN: 978-0730302124
3rd edition
Authors: Keith Alfredson, Ken Leo, Ruth Picker, Paul Pacter, Jennie Radford Victoria Wise