You are working as an accountant for Bronson, Lazenby & Dalton and the senior partner has asked
Question:
You are working as an accountant for Bronson, Lazenby & Dalton and the senior partner has asked you to prepare a report answering the following questions about consolidation procedures for a client:
Follyfoot Ltd has a 33% interest in the share capital of Cue Ltd, which is a company involved in the same industry as Follyfoot Ltd. The remaining share capital is owned by Mr. and Mrs. Lewelyn who are the founders of Cue Ltd. Mr. and Mrs. Lewelyn have given Follyfoot Ltd three out of five seats available on the board of directors. Follyfoot Ltd takes the lead on all decisions but the business is closely monitored by Mr. and Mrs. Lewelyn who hold the other two board positions.
Advise the directors of Folly foot Ltd of the requirements of AASB 10 in respect of the control criterion and how they would apply to this investment.
Why is it necessary to make adjustments for intra-group transactions?
As the majority of the directors do not have an accounting background, your report answering the questions must be written to convey a clear understanding of consolidation accounting concepts (control vs significant influence) and other relevant accounting issues.
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates