Neste Berhad has set up a company, namely Nescafe Sdn Bhd which Nescafe Sdn Bhd will conduct research and development (R&D) activities for Neste Berhad. Neste has paid RM400 million to Nescafe during the year and this has been included in dividends paid. The money was invested in a few projects. Ninety five per cent (95%) of the profits and one hundred per cent (100%) of the losses in the project investments are transferred to Neste. A R&D director is fully in charge of Nescafe and owns all of the share capital of Nescafe. An agreement between the director and Neste sets out the operating guidelines and prohibits the director from obtaining access to the investments for the director's benefit. An annual transfer of the pro?t/loss will occur on 31 December annually and the capital will be returned in ten (10) years time.

Required:
Discuss the issues which would determine whether Nescafe Sdn Bhd should be consolidated by Neste Berhad in the group financial statements.

Answer rating: 100% (QA)

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