Refer to the following two independent investments made by Lu Inc. Explain the relationship of Lu Inc with the investee(s) AND how should Lu Inc. report the investments. 

i) Lu Inc. owns 16% of Gold Inc, Yu Inc. owns 18% of Gold Inc. The remaining shares of Gold Inc. are owned by many small investors. The only material asset in Gold books is leased equipment. Since both Lu and Gold operate in the same industry with significant inter-company transactions the Lessor demanded that Lu co-sign the lease agreement. Under the agreement, Lu is required to make up any shortfall should the equipment value decline below residual value. (3 marks) 

ii) Lu Inc purchased 30% of Commons shares of Copper Inc. The remaining shares of Copper Inc are held by Wang Inc. The shareholder agreement states that both Lu and Wang must agree to all major operating and financing decisions made by Copper Inc. (3 marks) 

iii) Lu Inc. owns 47% of Silver Inc. Many small investors own the remaining 53% shares of Silver Inc, and almost all are passive shareholders and do not participate in shareholder meetings

Answer rating: 100% (QA)

i No Lessee always need to pay his monthly commitment of lease amount as per aggreement and based on ... View the full answer