In each of the following independent situations, determine whether there is a business combination as per AASB3 and whether AASB10 requires any party to consolidate the financial statements. Clarify your decision.

A Ltd holds a 51% interest in J Pty Ltd. The interest was created when A Ltd converted a substantial loan it made to J Pty Ltd into equity. The remaining 49% interest of J Pty Ltd belongs to B Ltd who is also involved in the day-to-day running of the business. J Pty Ltd has a large deficiency in net assets. A Ltd is a passive investor having no seats on the board of directors and does not contribute to the financing or operating decisions of J Pty Ltd

b) M Ltd is owned by 45% by A Ltd and 45% by B Ltd with equal share of seats on the board of directors. Under the agreement, A Ltd is the holder of remaining 10% interest of M Ltd which is exercisable at any time. A Ltd is a passive shareholder and it is happy with the way B Ltd has been running the company.

c) A Ltd is a 49% shareholder of Q Ltd and currently has 2 out of 5 board seats. B Ltd is 45% shareholder of Q Ltd and currently has the remaining 3 board seats through a contractual arrangement with the remaining small shareholders of Q Ltd. Both A Ltd and B Ltd are active shareholders in running Q Ltd while other small shareholders are passive

Answer rating: 100% (QA)

a As per AASB10 Control meaning becomes wider as holding more than 50 share is not enough to prove t... View the full answer