Reference no: EM132440999

Question - You own a financial accounting services called MyOwnWork Consultancy Pty Ltd. It's the company you have established after graduating with honours degree in accounting and management. The finance director of Millionaires Club Pty Ltd (MC) which is a private company with many strategic investments, approached you and began discussing his concern that he might be required to consolidate some of these investments, pursuant to AASB 10. Details of the investment relationships are as follows:

a) MC has a 25 per cent interest in the share capital of LBX Pty Limited (LBX), which is a company involved in the same industry as MC. The remaining 75 per cent of the share capital is owned by LBX's founders, Mr and Mrs T. Mr and Mrs T are unfamiliar with the industry and so have given MC three seats out of the five seats available on the board of directors. MC takes all the lead on all decisions, but the business is closely monitored by Mr and Mrs T, who hold the other two board positions.

b) MC has a substantial loan receivable from BBT Pty Ltd (BBT) but owns no shares in it. BBT, as a result of the current economic climate, has experienced significant trading problems. BBT has failed to make its regular payments under the loan with the management of BBT that MC executives will take control of the company's finances for a period of five years. An executive of MC has been given control of BBT's cheque book and makes all payments. MC has not gained any seats on BBT's board of directors, which is still dominated by BBT shareholders.

c) MC hold a 75 per cent interest in JB Wifi Pty Ltd. The interest was created when MC converted a substantial loan it made to JB Wifi into equity at the invitationof JB Wifi when JB Wifi began to trade poorly and recovery of the loan seemed uncertain. JB Wifi has a large deficiency in net assets and has been consolidated for many years. MC is a passive investor, having no seats on the board of directors and no say in the financing or operating decisions of JB Wifi.

Required - Being the owner and CEO of MyOwnWork Consultancy Ltd, advise the finance director of MC of the requirements of AASB 10 in respect of the control criterion. For each of the above investments, indicate where the control rests and whether or not consolidation will be required. Discuss the reasons for your answers. Where possible, support your answer with excerpts from AASB 10.