Control Criteria of AASB 10 and Intra-Group Transactions in Financial Accounting

This report discusses the control criteria of AASB 10 and its application to investment, and the necessity of making adjustments in intra-group transactions while consolidating. It also highlights the issues faced by companies while preparing consolidated financial statements. The subject is Advanced Financial Accounting, and the course code and college/university are not mentioned.

Adv. Financial
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK ..............................................................................................................................................3
Give advise on the control criteria of AASB 10 and its application to investment....................3
Discuss the necessity of making adjustments in intra- group transactions while consolidating.4
CONCLUSION ...............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Accounting standards defines the rules and regulations that govern the functioning of
various financial systems of the country. These norms are generally prepared by the company by
its own and usually varies from nation to nation. They also takes care of the various rights of the
companies and its members along with protecting the interests of various parties involved and
linked to them (Cîrstea, Nistor and Tudor, 2017). This report is based on the given case scenario
which discusses about the control criteria of AASB 10 and its application to investment. It
further describes the necessity of making adjustments in intra- group transactions and various
issues related to it.
TASK
Give advise on the control criteria of AASB 10 and its application to investment.
AASB 10 comprises of the IFRS 10 consolidated financial statements issued by
international Accounting Standards Board (IASB). The amendments related to these reports is
also available in this only. According to the new model of AASB 10 , there are some controlling
criteria which requires to be followed by the firms.
 The investor of the firm holds the power to direct all the linked activities of the investee.
This means all the actions which affects the returns of the investing party is in direct
control of the acquiree.
 The investor has rights over the returns and the firm. They holds the voting rights and the
controlling rights through the shares held by them.
 The investing party holds the ability to use its power to affect the returns arising form the
involvement of investee in the activities related to it (Generalova and Gorlovaya, 2019).
As per the above criteria, Lemon drop Ltd has full control over the working of the
business. They acquires 33 % share in Sherbet Lemon Ltd. Any activity taking place in the
company directly links to its profit earning capacity. So, being a shareholder, it has rights over
the control and monitoring function of the former.
While looking at the other side, Mr. and Mrs. Gambdon holds 67% share in Sherbet
Lemon Ltd. They directly holds the power of taking various decisions in the firm. Lemon Drop
cannot take all business related decisions as they directly affects to the returns of the firm. So,
they have right to be involved in the decision making process.

The amount of investment made by them does not affect there rights as they both control
the shares more than minimum acquisition of 10%.
Discuss the necessity of making adjustments in intra- group transactions while consolidating.
Concept of consolidation of accounting
The consolidated financial statements can be defined as a group of reports comprising of
the economic entity of the the company and its subsidiaries. They comprises of the profit and
loss account and the balance sheet, along with various other summarised reports. It presents the
overall position of the whole business while considering only internal aspects of it.
Adjustments in the intra group transactions are relate to the internal workings and do not
consider the transactions related to external parties. The basic aim of these transactions is to
eliminate all the inter company activities which affects the profitability of the firm. For example,
if a firm sold one of its machinery to its subsidiary, at the time of consolidating intra- group
transactions, the company and its subsidiary both has to eliminate the effect of gain from it (de
Lima Silva, and et.al., 2020).
Following are the points because of which it is required to make adjustments in
consolidated transactions.
 While making combined statements, the various transactions of firm and the subsidiary
shows double effect which requires to be eliminated for generating true knowledge of the
financial position.
 The asset and liabilities statement of both the business includes the items related to the
external parties as well, but this statement requires to hold only the internal aspects of
business. So, the affect through adjustment is required to be conducted.
 Deferred tax accounts are raised when there is a temporary difference in the tax base
while carrying the amounts of assets and liabilities. So, it is important to balance the
impact of this account as at the time of consolidation, the value of these figures tends to
change (Kim and Ryu, 2018).
There are various problems which were faced by the company while framing a consolidated
intra-group transactions.
Issues
 Treatment of losses by subsidiaries- The parent company has to bear the losses incurred
by the subsidiaries. There loss is required to be compensated with the main firm.

 Complex capital structure- Mostly Share capital scheme of the different companies are
variant and it is very much difficult to frame there shape according to its own.
 Costs- For making and reading the consolidated statements, there is always a requirement
of a well trained or expert staff and hiring such employees costs high to the company.
Also, it requires lots of time to identify the mistakes and doing adjustments, which adds
to the cost to the company (Bidabad, Amirostovar and Sherafati, 2017).
These are some of the above issues which are faced by Lemon drop while preparing
consolidated financial statements
CONCLUSION
This can be concluded form the above report that AASB 10 governs the rights of the
various stakeholders. It gives directions to the firm regarding the decision making and
monitoring authority of the partners. All the investing parties have control over the actions which
affects there returns from the business irrespective of the percentage of shares held by them. Big
firms have number of subsidiaries so, it requires to prepare a consolidated statement of all the
reports so that actual overall result can be driven. For this, adjustments are done on them for
eliminating the dual effect of various transactions. But conducting this procedure is not an easy
task. It demands lots of efforts, time and an expert knowledge. Only then these reports can be
used as a reliable source of evaluating the performance of company. Hence, the Lemon Drop
must have knowledge related to the consolidation of intra-group accounts so that it can prepare a
consolidated statement easily.

REFERENCES
Books and Journals
Bidabad, B., Amirostovar, A. and Sherafati, M., 2017. Financial transparency, corporate
governance and information disclosure of the entrepreneur’s corporation in Rastin
banking. International Journal of Law and Management.
Cîrstea, A., Nistor, C.S. and Tudor, A.T., 2017. Consolidated financial statements–a new
challenge for the public sector administration. Journal of Economic and Administrative
Sciences.
de Lima Silva, and et.al., 2020. A new preference disaggregation TOPSIS approach applied to
sort corporate bonds based on financial statements and expert's assessment. Expert
systems with applications. 152. p.113369.
Generalova, N. and Gorlovaya, E., 2019, November. Conceptual transformation of “de facto”
control in preparing consolidated financial statements: the experience of Russian
companies. In Third International Economic Symposium (IES 2018) (pp. 264-272).
Atlantis Press.
Kim, S. and Ryu, H., 2018. The impact of mandatory IFRS adoption on capital markets:
evidence from Korea. International Journal of Accounting & Information Management.