AASB 10 (Auditing and Accounting Standard Board) Assignment 2022

AASB 10 (Auditing and Accounting Standard Board) talks about the Consolidated Financial
Statements .The parent company is required to prepare the consolidated statements of accounts
and the parent entity is an entity that controls another entity and the subsidiary company is a
company that is manged and controlled by another entity or person. (SlidePlayer.com, 2019).In a
consolidated financial statement all the expenses,income,assets ,liabilities are combine together of
the parent and subsidiary to show as one into a single statement.
As per AASB 10 ,control plays a very significant role to determine whether an investor or the
company which is a parent company has a controlling power over the investor.
Generally, the investor or the p [aren’t controls the other entity when the investor has the power to
influence the decision-making process of another person through its involvement. The other person
also has the ability to affect those decisions through its power over the investee.
The investor or the parent company controls the investee company if and only the investor company
exercises the following:
 Investor company has the power over the investee. An investor has the power over another
person when the investor has such right to take major decisions which can influence the
return of the investee. The power generally arises from the right and sometimes the right
over the another company is obtained through holding shares of another company i.e.
through voting rights over another company .In this case right of the investor can be access
through the majority of the shares the investor and the parent company is holding .If the
investor also has the ability to influence the major activities of the investee company ,than it
shall be enough to consider that the investor company has the power over the investee
company whether the investor company right to exercise such power is still pending.
 Rights and exposure over the decision. An investor in the company is also entitled to have a
share in the return with its involvement in the decision-making process with the investee.
The return of the investor may be positive, or might be negative or it can be both positive
and negative. The control over the investee is generally of one investor or one-party other
can take a part in the share of profit of the company like belonging to a category of holders
of non-controlling interest, they can share in the profit of the company.
 The investor also has the ability to use its decision-making power over the investee to affect
the value of the return of investors. If the investor controls the investee in such a way that
the decision of the investor can vary the return of the investee from its involvement and
judgement making power. Through the decision making power of the investor one can
conclude that whether the investor is a principal of the company or acting as an agent .If the
investor is acting as an agent and not as a principal than the investor is not supposed to
control the investee of the company. (Consolidated Financial Statements, 2019)
In the question given that as the company Mooncake Ltd is holding 33 percentage interest in the
share capital of Money Penny Ltd and the remaining shares of the company is held by Mr and Mrs
Dench who are the founders of the company Money Penny Ltd .The founders of the company have
given three out of total five seats available to the company Moonraker Ltd on its board of
directors .Moonraker limited also has a significant influence on the decision making process of the
company and the company takes a lead on all the decision making process of the entity but the
business is closely monitored by both the founders of the company who together hold the remaining
seat of the company on the board. The above provision of control is established in the given case.

When the two company are bought together in the consolidated financial statements of the
company, intra group transitions adjustments are compulsorily required to be done in order to form
and reflect the accounts as a single entity.
For instance, sale and purchase between the two company will be recorded as sale and profit of the
company and reduction in inventory in case of selling company. For the purchasing entity ,it will
record the purchase and increase the inventory of the company .For the group accounting there is
just a movement of inventory items and no change in both the entity. (Cima, 2019)
References
Cima. (2019, September 19). intra-group transactions. Retrieved from www.cimaglobal.com:
http://www.cimaglobal.com/Pages-that-we-will-need-to-bring-back/velocity-archive/
Velocity-e-magazine/Velocity-2012/Velocity-December-2012/F1-Cathy-Sibley-on-intra-
group-tr
Consolidated Financial Statements. (2019, September 19). Retrieved from jade.io: https://jade.io/j/?
a=outline&id=584708
SlidePlayer.com. (2019, September 19). AASB 10 Consolidated Financial Statements. Retrieved from
slideplayer.com: https://slideplayer.com/slide/625865