Advanced Management Accounting MiniCase
Mini Case 3:
1. Q: A Ltd. owns 45 percent of B Co. Typically, only about 70 percent of the outstanding shares are voted at the annual meetings of B Company. Because of this, A Ltd. always casts a majority of the votes on every ballot when it votes the shares it holds.
Since A Ltd. owns 45% of B Co. but maintains the majority of the voting power due to only about 70% of the total amount of available votes casted. This gives A Ltd. the control to decide on the operating and financial policies of B Co. This being said A Ltd. owns 45% interest in B Co and thus needs to account for that percentage of ownership appropriately using the proprietary model of consolidation. This will accurately and reliably reflect accounting information provided on the consolidate statements.
2. Q: A Ltd. holds no shares of B Co.; however, it holds convertible bonds issued by B Co. that, if A Ltd. converted them, would result in the ownership of 51 percent of the outstanding shares of B Co.
A Ltd. should continue to report the convertible bonds as an investment asset on its statement of financial position as well as report the investment income generated from the bonds on their statement of comprehensive income. This will continue until the convertible bonds are exercised in then which A Ltd. will acquire control over B Co. and then be required to prepare consolidated financial statements. At this time, A Ltd. will own 51% of B Co. and likely use the proprietary model when preparing consolidated financial statements as this method would accurately portray the ownership percentage of B Co. that is owned by A Ltd.
Since A Ltd. holds these convertible bonds but has not converted the bonds to B Co. shares, A Ltd. should disclose this information to investors in the notes as this type of information can be very decision useful and provide information about future strategic actions in regards to acquisitions.
3. Q: A Ltd. owns 75 percent of B Co. Recently a receiver, acting on behalf of
1. Q: A Ltd. owns 45 percent of B Co. Typically, only about 70 percent of the outstanding shares are voted at the annual meetings of B Company. Because of this, A Ltd. always casts a majority of the votes on every ballot when it votes the shares it holds.
Since A Ltd. owns 45% of B Co. but maintains the majority of the voting power due to only about 70% of the total amount of available votes casted. This gives A Ltd. the control to decide on the operating and financial policies of B Co. This being said A Ltd. owns 45% interest in B Co and thus needs to account for that percentage of ownership appropriately using the proprietary model of consolidation. This will accurately and reliably reflect accounting information provided on the consolidate statements.
2. Q: A Ltd. holds no shares of B Co.; however, it holds convertible bonds issued by B Co. that, if A Ltd. converted them, would result in the ownership of 51 percent of the outstanding shares of B Co.
A Ltd. should continue to report the convertible bonds as an investment asset on its statement of financial position as well as report the investment income generated from the bonds on their statement of comprehensive income. This will continue until the convertible bonds are exercised in then which A Ltd. will acquire control over B Co. and then be required to prepare consolidated financial statements. At this time, A Ltd. will own 51% of B Co. and likely use the proprietary model when preparing consolidated financial statements as this method would accurately portray the ownership percentage of B Co. that is owned by A Ltd.
Since A Ltd. holds these convertible bonds but has not converted the bonds to B Co. shares, A Ltd. should disclose this information to investors in the notes as this type of information can be very decision useful and provide information about future strategic actions in regards to acquisitions.
3. Q: A Ltd. owns 75 percent of B Co. Recently a receiver, acting on behalf of