Question: The company you work for, Consol-Group Ltd (CG Ltd), consists of a parent company, Consol Ltd, and a number of partly owned subsidiaries and associate companies. CG Ltd has just appointed a new CEO, who has limited accounting knowledge. In reviewing the published financial statements for the last financial year, the CEO has raised the following two issues:
1. CG Ltd owns shares in a number of other companies. This includes holding 65% of the shares of Trade Ltd and 48% of the shares of Export Ltd. The CEO queries if it is correct that Trade Ltd has not been identified as a subsidiary, while Export Ltd has been identified as a subsidiary.
2. It appears the financial statements of CG Ltd include 100% of the assets and liabilities of Export Ltd. Isn't this misleading given Consol Ltd owns less than 100% of the shares of Export Ltd?
You have been given the task of responding to these issues via a 2,500 word report which will be distributed to the CEO and senior management. Allocate approximately 1,500 words to the first issue raised by the CEO and 1,000 words to the second issue raised. You need to use authoritative, relevant references and relevant Accounting Standards and the AASB Framework to help support your argument. However, remember your audience (the CEO) is not accountants, so you need to use this information to support your argument (e.g. don't just quote large sections of the standards, as the CEO won't read it!).