Q4. Bill Handy, The finance director of Northern Australia Global Investments Ltd (NAGIL), isunsure whether he should consolidate some of the investments that the company owns. Hehas asked your advice...

Q4. Bill Handy, The finance director of Northern Australia Global Investments Ltd (NAGIL), isunsure whether he should consolidate some of the investments that the company owns. Hehas asked your advice as business adviser to NAGIL. The details of the investments are asfollows:(a) NAGIL had provided a loan to Struggle Ltd (SL) some years ago. When it looked as if SLwould be unable to repay the loan it was converted into equity which gave NAGIL a 70%holding in SL. SL continues to have a substantial accumulated losses balance and thecompany’s results have been consolidated with NAGIL for some time. NAGIL does nottake an active role in the day to day operations of SL as it has no directors on the boardand it takes no part in the operating or financing decisions of the company.(b) NAGIL has also provided a loan to the Very Big Company Ltd (VBCL). Unfortunately dueto an industrial economic downturn the VBCL has failed to meet its loan repayments asrequired by the loan contract. The board of NAGIL is concerned that not only would theVBCL continue to have problems but also that the whole of the loan would becomeunrecoverable. The board of VBCL has agreed, as part of a bailout package, that NAGILwould take charge of VBCL’s finances for the next four years. The NAGIL deputy chieffinance officer would control all payments made by VBCL and no payments would bemade without prior approval. NAGIL does not have board representation on VBCL whichis appointed by the VBCL shareholders.(c) The Medium Sized Company Ltd (MSCL) is part funded by NAGIL, which owns 50% ofthe shares, and by Sharp Players Ltd (SPL) which owns the other 50%. The votes of theordinary shares in the annual general meetings and the board representation are sharedequally between NAGIL and SPL. SPL and NAGIL have agreed that NAGIL will providethe finance on a standard commercial basis with the loan being secured by a mortgageon MSCL’s property. The agreement also stipulates that SPL will provide the necessarymanagerial and entrepreneurial expertise in return for a management fee. Themanagement fee will be paid out of ASCL’s net profits after providing for all NAGIL’s loaninterest payments. Where MSCL does not make a profit the interest payments will stilltake place but no management fee will be paid.(d) Tom and Marjory Legless are founders of CrocsRUs an adventure travel company. Theyboth sit on the board and own 60 per cent of the shares. They have recently retired fromactively running the company and have sold the other 40 per cent of the shares toNAGIL who manages the company on their behalf, holding the other three seats on theboard. Although Tom and Marjory keep a close eye on the business they let NAGILmake the major decisions.1The College of Business and Law ACT305 Corporate Accounting Semester 2, 2018 Page 5 of 5REQUIREDWrite a report to Bill, advising him how the control requirements of AASB 10 apply in each ofthe above investments. State, for each investment, where the control rests, citing andexplaining how the relevant paragraphs of AASB10 apply, and whether Bill should includethe results of the investments within the consolidated accounts explaining the reasons foryour decision.(18 marks)The report should take the format of a formal business report, written by your firm withyourself as lead author. Marks will be awarded for presentation style and an appropriatebusiness format.