Aasb in the Case of Great Tools

AASB

In the case of Great Tools Ltd., GGG still has control over the subsidiary. As such the parent company retains the right to upgrade the overall property, plant and equipment of the Great Tools Ltd. Within the AASB standards, the paragraphs regarding control are very clean. The standards specify the reason and methods in which an investor can initiate control over an investee. In addition, the statute also discusses how these requirements are determined. For instance, paragraphs 6 indicates the investors control an investee when is has the ability to materially affect the overall returns of the investee through its power. This could include exposure and involvement in the overall returns of the investee. As the case illustrates, GGG owns 70% of Great Tools Ltd. Therefore, GGG, has the undisputed ownership of the subsidiary due to its overall exposure and its power over the actual investee (AASB releases new Code of Ethics, 2009).

This situation is unique due primarily to the dual relationship between the bank and the parent company. In this instance, neither Greater Tools Ltd., nor HSBC can take sole ownership of the subsidiary. Instead, as the AASB standards indicate, both parties have collective control of the subsidiary. This is due to a litany of reasons. First, Electric Lawnmowers can not act without the overall consistent of the bank due to prior arrangements. Likewise, Electric Lawnmower is owned primarily Greater Tools. Although Greater Tools Ltd. has a 55% stake in the subsidiary, it can not exercise full control of operations without the consent of the bank. As such both parties must work collectively to achieve the desire financial results. Due to the banks heavy restrictions placed on Electric Lawnmower, the company can not change operations without consent. To complicate issues, Greater Tools has incentive to change operations due to the slow demand and growth of the company. In order to do so, both entities must operate collectively to change the companies focus and operations. Therefore, under AASB both entities collectively control the investee (Proposed Standard: AASB 310 Dealing with Client Monies, 2011).

3) Much like the example above, both GGG and PPP are collective partners. Unlike the above example, the reasons for the collective agreement are somewhat different under AASB regulation. In this instance, both parties own equal shares with the subsidiary, with GGG owning 50% and PPP owning 50%. Both parties satisfy the 3 AASB requirements of control. These requirements are that the investor has "power" over the investee, it has exposure to the returns of the investee, and that it can utilize this power to affect the overall returns of the investee. All three aspects are satisfied equally between the two parties. Complicating the issue further are the warrants owned by GGG to purchase more shares of the company. If the company decides to exercise the options at a 20% discount to fair value, then GGG would have full control of the subsidiary. This occurs because GGG will own more than half of the shares and is therefore the majority owner. Likewise the three requirements will be skewed heavily in the favor of GGG. As such, GGG will thus become the sole controller of the subsidiary (New standard for trust accounts of members in practice, 2011).