Individual Assignment: Financial Accounting and Reporting - ACCM4300

This assignment report, prepared by a student for ACCM4300 Financial Accounting and Reporting, addresses business combinations and consolidated financial statements. The report, formatted as a memorandum to Ms. Samantha Cole at PWC Ltd, analyzes four scenarios involving parent and subsidiary relationships under AASB 10. The student examines issues related to control, power over investees, and the preparation of consolidated financial statements. The report discusses Tom Ltd's relationships with Toots Ltd, Tyke Ltd, and Toodles Ltd, and Beep Ltd's relationship with Looney Ltd, determining the existence of holding and subsidiary companies based on equity ownership and managerial control. The report references relevant accounting standards and provides a clear analysis of each case, supported by references to accounting literature. The student was also required to summarize findings in a video presentation.

Running head: FINANCIAL ACOUNTING AND REPORTING
Financial accounting and reporting
Name of the student:
Name of the university:
Author note:

1
FINANCIAL ACOUNTING AND REPORTING
MEMORANDUM
To: Ms. Samantha Cole (Manager)
From:
CC:
Subject: Related to business combination and consolidated financial statement
Date: 3th September 2019
This memorandum is particularly issued to provide details assistance to the Ms. Samantha
Cole (Manager) about the business combination and consolidated financial statement relating
to tom ltd. Parent company is hold or control the subsidiary company. A company is called
the holding company if it has a subsidiary company. As well as the company is considered a
subsidiary of the parent company. According to the provision of AASB 10, each parent
company needs to maintain a consolidated financial statement annually. Here in case of
AASB 10, it is considered as a responsibility to keep the consolidated financial report in case
of providing the regarding and comparable financial information to the board of director. This
organization conducts their operations over 20 countries around the world, and it has mainly
three industries; petroleum, mining and metals related activities. It is also engaged in
manufacturing some commodities like; coal, petroleum products, iron ore, nickel, copper and
also potash.
According to the provision of AASB 10 the parent company need to maintain the
consolidated financial statement, which is the combination of both the parent and subsidiary
companies financial statement, whether or not the subsidiaries are preparing their financial
report as a separate legal entity. The main reason behind the preparation of the consolidated

2
FINANCIAL ACOUNTING AND REPORTING
financial report is to disclose all the relevant information and board of directors so that they
would able to take proper economic and business decisions (Kumar 2016).
Issue 1:
According to the principle of AASB 10 consolidated financial statement, a relationship
between parent and subsidiary company is generally exists when the one (parent company) is
controlled by the other company (subsidiary company). As per the provision provided by
AASB 10 in cases of power of investors over investee generally the investors need to have
some control. Along with such powers the investors also needs to be exposed to some risk as
well as rights to the profit which can be gained by getting involved with the investee and also
need some decisions making abilities, which can influenced the other investors. Here in the
problem the Tom Ltd and Toots Ltd both are considering equal equity rights in the formed
company. However in such case a parent and subsidiary relationship is continuing between
those two companies (Merkx2016). Such relation is existing because of the managerial fees
of the formed company is generally paid by Tom Ltd to Toots Ltd. Generally this relation is
expressing the views that in case of Jerry Ltd Tom Ltd have the power to take the managerial
decisions that can has some impact on the returns of other shareholders. As the Tom Ltd
having the control over Jerry ltd therefore it is required to maintain consolidated financial
statement as per the AASB’s provisions (AASB 2016). Tom ltd and Toots ltd hold equally
50% shares in jerry ltd and with the Toots ltd which is actually directing jerry ltd because of
its management expertise. Here, in present scenario the main company, Tom ltd is
considering as the holding company and the Toots ltd is the subsidiary company.

3
FINANCIAL ACOUNTING AND REPORTING
Issue 2:
According to the problem the Tom Ltd has obtained 35% interest in Tyke ltd. If we consider
the provisions provided in AASB 10, an investor generally contain some power and control
over the performance of an investee company. Such power is generally used to express for
the parent & subsidy relationship purpose. Followed the principles of AASB 10, we can
conclude that the Tom Ltd. have the power over Tyke Ltd. They should have access to or
rights to the variability of returns from investee, and use its power in its decision making
which can influence other shareholders’ returns. Here in the problem it was stated that the
Tom Ltd. has got the powers to make the decisions using the power of majority board
members in Tyke Ltd (Lee and Parker 2014). According to the provisions that is provided in
AASB 10 to determine the level of power, an investee should consider the purpose and
design of the investee and also the relevant activities and the decisions for these activities. In
the problem, Tom Ltd. makes decisions of the concerning activities as they have majority of
members in the board. Hence it can be said that there is parent & subsidiary relation
continuing between them and the Tom Ltd is considered as the parent company of Tyke Ltd.
and it should require preparing the consolidated financial statements as per the provisions
provided in the AASB 10 (Bisogno, Santis and Tommasetti 2015).
Issue 3:
According to the provisions of AASB 10, in case to get the control over Toodles Ltd, the
Tom Ltd required full power of authority. The company required the general rights in the
variability of returns from the investee company along with such also need some power
relating to decision making abilities, which can be influenced the other shareholders returns.
Here according to the problem Tom Ltd has the largest number of chairperson in company’s
board of authority, which is generally, affect the decisions regarding the company’s overall

4
FINANCIAL ACOUNTING AND REPORTING
growth and simultaneously affecting on the returns of the other stakeholders (Liao, Nicoletti
and Su 2018). Maximum shareholders that is 30% causes it to be exposed to the variability of
risk and returns of Toodles Ltd. As per the provision provided in AASB 10, investors always
have the power to make decisions regarding business decisions. Here in the problem Tom Ltd
can impact the decisions related to important activities that are relevant for the company, as
the majority members in the board of the investee are in Toodles Ltd. Now as a conclusion it
can be considered that there is a parent & subsidiary relation that exists between them and
Tom Ltd. is a parent company of Toodles Ltd. It according to AASB 10, should prepare
consolidated financial statement (Curran 2016).
Issue 4:
Here in the problem tom ltd owns 80% of the equity shares of Beep Ltd, which owns 100%
of the shares of Looney Ltd. According to the provisions providing the AASB 10 if a
company acquire more than 50% shares of any other company and if such company contain
any substantial interest in that particular company, therefore such will consider as holding
company and the other one as subsidiary company (Hong 2018). In the present scenario Tom
ltd will consider as a holding company of Beep ltd as its holding more than 50% equity
shares. Again Beep limited will consider as the holding company of Looney limited as it is
also holding more than 50% shares of Looney limited. However the beep ltd is not an ASX
listed company as its shares are not traded among public. Here the main company, Tom ltd is
considering as the holding company and the beep ltd is the subsidiary company in present
scenario.
Reference:

5
FINANCIAL ACOUNTING AND REPORTING
AASB, C.A.S., 2016. Consolidated Financial Statements.
Bisogno, M., Santis, S. and Tommasetti, A., 2015. Public-Sector consolidated financial
statements: An analysis of the comment letters on IPSASB’s exposure draft no. 49.
International Journal of Public Administration, 38(4), pp.311-324.
Curran, V.G., 2016. Harmonizing Multinational Parent Company Liability for Foreign
Subsidiary Human Rights Violations. Chi. J. Int'l L., 17, p.403.
Hong, S., 2018. Tax Treaties and Foreign Equity Holding Companies of Multinational
Corporations. mimeo.
Kumar, A., 2016. State holding companies and public enterprises in transition. Springer.
Lee, T.A. and Parker, R.H., 2014. Company financial statements: an essay in business history
Liao, S., Nicoletti, A. and Su, B., 2018. The Effect of Subsidiary Accounting Quality on
Internal Capital Allocation Efficiency: Evidence from Bank Holding Companies.
Unpublished working paper.
Liu, W.C. and Hsu, C.M., 2014. Profit performance of financial holding companies: Evidence
from Taiwan. Emerging Markets Finance and Trade, 50(sup3), pp.190-200.
Merkx, M., 2016. VAT and Holding Companies: Position Finally Clear?.EC Tax Review,
25(1), pp.49-53.
Hadi, K.T. (2015). Consolidated financial statements.
Muscat, A., 2016. The liability of the holding company for the debts of its insolvent
subsidiaries. Routledge.
Nobes, C., 2014. International classification of financial reporting. Routledge.