Corporate Accounting: Analysis of Investments and Loans as per AASB 10

This assessment analyzes the provisions of AASB 10 on consolidated financial statements and advises the finance director of Northern Australia Global Investments Ltd (NAGIL) on the inclusion of investments made by the business during the period. The assessment shows the application of the provisions of AASB 10 in order to determine whether the finance director should incorporate the transaction in the consolidated financial statement of the business.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author’s Note

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CORPORATE ACCOUNTING
Table of Contents
Answer to Question 1:.....................................................................................................................2
Requirement a:.............................................................................................................................2
Requirement b:.............................................................................................................................3
Answer to Question 2:.....................................................................................................................4
Answer to Question 3:.....................................................................................................................4
Answer to Question 4:.....................................................................................................................7
Introduction..................................................................................................................................7
Part a............................................................................................................................................7
Part b............................................................................................................................................8
Part c............................................................................................................................................8
Part d............................................................................................................................................9
Conclusion...................................................................................................................................9
Reference.......................................................................................................................................10

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CORPORATE ACCOUNTING
Answer to Question 1:
Requirement a:
Date Debit Credit
01-07-2017 Investment in Fry Ltd. A/c. 50000
Cash at Bank A/c. 50000
30-06-2018 Investment in Fry Ltd. A/c. 15000
Equity in Earnings of Fry Ltd. A/c. 15000
Cash A/c. 24000
Investment in Fry Ltd. A/c. 24000
30-06-2019 Investment in Fry Ltd. A/c. 13500
Equity in Earnings of Fry Ltd. A/c. 13500
Cash A/c. 4500
Investment in Fry Ltd. A/c. 4500
30-06-2020 Investment in Fry Ltd. A/c. 12000
Equity in Earnings of Fry Ltd. A/c. 12000
Cash A/c. 3000
Investment in Fry Ltd. A/c. 3000
Particulars
In the books of Small Ltd.
Journal Entries

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CORPORATE ACCOUNTING
Requirement b:
Date Debit Credit
01-07-2017 Investment in Fry Ltd. A/c. 50000
Cash at Bank A/c. 50000
30-06-2018 Share Capital A/c. 9000
Retained Earnings A/c. 36000
Goodwill A/c. 5000
Investment in Fry Ltd. A/c. 50000
Share Capital A/c. 21000
Retained Earnings A/c. 84000
Non-Controlling Interest A/c. 105000
Equity in Earnings of Fry Ltd. A/c. 35000
NCI share of profit A/c. 35000
Dividend Revenue A/c. 24000
Non-Controlling Interest A/c. 56000
Dividend Paid A/c. 80000
30-06-2019 Equity in Earnings of Fry Ltd. A/c. 31500
NCI share of profit A/c. 31500
Dividend Revenue A/c. 4500
Non-Controlling Interest A/c. 10500
Dividend Paid A/c. 15000
30-06-2020 Equity in Earnings of Fry Ltd. A/c. 28000
NCI share of profit A/c. 28000
Dividend Revenue A/c. 3000
Non-Controlling Interest A/c. 7000
Dividend Paid A/c. 10000
In the books of Small Ltd.
Journal Entries
Particulars

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CORPORATE ACCOUNTING
Answer to Question 2:
Ranking Types of Creditors
1 Receiver's Cost when realising secured assets
2 Liquidator's Expenses
3 Secured Creditors
4 Staff Wages Payable
5 Staff Leave Entitlements
6 Unsecured Bank Overdraft
7 Tax Payable
8 Local Government Rates
9 Unsecured Trade Payables
10 Executive Directors' Wages Payable
11 Executive Directors' Leave Entitlements
12 Dividend Payable
Particulars Amount Balance
Sale of Secured Land & Buildings $ 75,00,000 $ 75,00,000
Receiver's Cost when realising secured assets $ -1,50,000 $ 73,50,000
Liquidator's Expenses $ -6,00,000 $ 67,50,000
Secured Creditors $ -90,00,000 $ -22,50,000
Sale of Other Assets $ 67,50,000 $ 45,00,000
Staff Wages Payable $ -9,00,000 $ 36,00,000
Staff Leave Entitlements $ -1,50,000 $ 34,50,000
Unsecured Bank Overdraft $ -7,50,000 $ 27,00,000
Tax Payable $ -10,50,000 $ 16,50,000
Local Government Rates $ -3,00,000 $ 13,50,000
Unsecured Trade Payables $ -24,00,000 $ -10,50,000
Executive Directors' Wages Payable $ -4,50,000 $ -15,00,000
Executive Directors' Leave Entitlements $ -1,50,000 $ -16,50,000
Dividend Payable $ -4,50,000 $ -21,00,000
Answer to Question 3:
In the Books of Blake Ltd.
Journal Entries
Dat Particulars Debit Credit

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CORPORATE ACCOUNTING
e
1 Pre-Acquisition Entries:
Share Capital A/c.
$
1,37,600
Retained Earnings (1/7/18) A/c.
$
1,16,960
Goodwill A/c. $ 51,600
Investment in Seven Ltd. A/c.
$
3,06,160
Share Capital A/c. $ 34,400
Retained Earnings A/c. $ 29,240
Non-Controlling Interest A/c. $ 63,640
2 Profit in Opening Inventory:
Retained Earnings (1/7/18) A/c. $ 4,214
Income Tax Expense A/c. $ 1,806
Cost of Sales A/c. $ 6,020
NCI Share of Profit A/c. $ 843
Retained Earnings (1/7/18) A/c. $ 843
3 Profit in Ending Inventory of Blake Ltd.:
Sales A/c. $ 44,720
Cost of Goods Sold A/c. $ 39,904
Inventory A/c. $ 4,816
Deferred Tax Assets A/c. $ 1,445
Income Tax Expense A/c. $ 1,445
Non-Controlling Interest A/c. $ 674
NCI Share of Profit A/c. $ 674
4 Profit in Ending Inventory of Seven Ltd.:
Sales A/c. $ 55,900
Cost of Goods Sold A/c. $ 53,836
Inventory A/c. $ 2,064

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CORPORATE ACCOUNTING
Deferred Tax Assets A/c. $ 619
Income Tax Expense A/c. $ 619
5 Impairment of Goodwill:
Impairment Loss - Goodwill A/c. $ 2,580
Accumulated Impairment Loss-Goodwill A/c. $ 2,580
6 Sale of Plant:
Profit on Sale of Plant A/c. $ 30,100
Plant-at Cost A/c. $ 30,100
Accumulated Depreciation A/c. $ 5,017
Depreciation Expense A/c. $ 5,017
NCI Share of Profit A/c. $ 1,003
Non-Controlling Interest A/c. $ 1,003
7 Management Fees:
Management Fees Revenue A/c. $ 22,790
Management Fees Expenses A/c. $ 22,790
8 Dividend Paid:
Dividene Revenue from Seven Ltd. A/c. $ 63,984
Dividend Paid A/c. $ 63,984
Non-Controlling Interest A/c. $ 15,996
Dividend Paid A/c. $ 15,996

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CORPORATE ACCOUNTING
Acquisition Analysis:
Particulars Amount Amount
Purchase Consideration $ 3,06,160
Less:
Share Capital $ 1,72,000
Retained Earnings $ 1,46,200 $ 3,18,200
Add: Non-Controlling Interest $ 63,640
Goodwill Acquired $ 51,600
Answer to Question 4:
Introduction
The main purpose of this assessment is to analyze the provisions of AASB 10 which is on
consolidated financial statements of the business and also application of the same in the case
which is provided. The assessment aims to advise the finance director of Northern Australia
Global Investments Ltd (NAGIL) for the purpose of inclusion of investments which are made by
the business during the period (Ginn 2013). The various investments which are made by the
company will be assessed on the basis of the provisions of AASB 10 during the period.
Part a
As per the case, NAGIL ltd had provided a loan to Struggle Ltd (SL) which was later on
converted to equity fund at the latter was unable to pay the same. This provided the company a
70% holding in the business of Struggle ltd. As per the provisions of Para 5 of AASB 10,
investor shall determine whether the same is parent company on the basis of control which the
business have over the investee. As per Para 7, control over a business is established when all the
conditions are met which are power over the investee, exposure or rights to variable returns from

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CORPORATE ACCOUNTING
the involvement in the business, the power to affect the returns which are made by the investee
(Aasb.gov.au. 2018).
The case shows that NAGIL ltd is not actively involved in the day to day business of the
company and also not in decisions of the business and therefore the management of the company
should not involve such investments in the consolidation of the business.
Part b
As per the case which is provides, NAGIL has provided loan to Very Big Company ltd
(VBCL) during the period. The management of NAGIL has not made an investment in the shares
of the company of VBCL but has provided a loan and VBCL has not been able to meet the
payment requirements of the loan and therefore a bailout package is initiated as per the company
cannot be make any payments unless the same is approved by NAGIL. This is not an investment
in the equity shares of the business and therefore the same cannot be covered in AASB 10 as
NAGIL cannot be considered as a parent company of VBCL. Therefore, the management of
NAGIL should consider the same as loan for the business.
Part c
The case which is provided relates to the company of Medium Sized Company Ltd
(MSCL) which is a subsidiary of both NAGIL and Sharp Players Ltd (SPL). Both the companies
hold equal share of ownership in the business and also provides finance on equal basis to the
company. As per the provisions which is stated in ASSB 10, Para 9 states that in case an investee
is controlled by two investors together than the same cannot be held to be controlled by any one
business and therefore both the companies needs to only account for the interest which it has in
the investee (Aasb.gov.au. 2018).

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CORPORATE ACCOUNTING
In the case of MSCL, the management NAGIL needs to only consider the interest on
loans and the management fees which is to be paid in case the company is able to generate
profits for the period. In case of losses, the management of MSCL only needs to incur interest
expenses and not the management fees to the business.
Part d
The case which is provided in the assessment shows that the management of NAGIL ltd
holds around 40% of holdings in the business of CrocsRUs and the other 60% is held by the
owners. The case provides that the management of the company is handled by NAGIL and also
all major decisions are taken by them as well. As per the provisions of ASSB 10, Para 7 provides
that in order for a business to be in control of the investee, the business should possess a power
over the investee, should have variable rights on returns of the business which is for active rile in
the business. and also, the ability to use the power over the investee in order to affect the returns
of the business. All three conditions need to satisfy for the business to have control.
In the case of CrocsRUs, the management of NAGIL have the control over the business
and also takes the major decisions and therefore they need to consolidate the investments in the
balance sheet.
Conclusion
The above discussion shows the various investments and loans which are provided to
different businesses during the period. The assessment shows the application of the provisions of
AASB 10 in order to determine whether the finance director should incorporate the transaction in
the consolidated financial statement of the business. The assessment effectively deals with the
reporting requirement of investments made in other businesses.

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CORPORATE ACCOUNTING
Reference
Aasb.gov.au. 2018. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf [Accessed 25 Sep.
2018].
Ginn, W., 2013. Investing in nature: case studies of land conservation in collaboration with
business. Island Press.