X Ltd and Y Ltd decide to establish a new entity, Z Ltd. The purpose of...

X Ltd and Y Ltd decide to establish a new entity, Z Ltd. The purpose of Z Ltd is to develop and market a new car seat designed for use by babies when travelling in a car. X Ltd and Y Ltd have specific roles in the new company and have unilateral ability to make all decisions in relation to their specified roles. X Ltd has agreed that it will be responsible for developing the new car seat and obtaining all the approvals from the relevant safety bodies in Australia. Once the seat has been designed and all safety approvals have been received, Y Ltd will manufacture and market the product.

Required

Discuss the activities undertaken by X Ltd and Y Ltd in relation to the determination of which entity controls Z Ltd.

Solutions

Expert Solution

Answer :

According to IFRS 11 Joint Arrangements,

A Joint Arrangement where at least two parties enjoys Joint Control.
Joint Control exists when decisions with respect to the important activities needs consistent agree of parties to Joint Arrangement.
Consistent or unanimous Consent implies no party can keep the other party from taking one-sided decisions.

According to the given case, Both X Ltd. and Y Ltd. entered into a Joint Arrangement and built up another entity Z Ltd.

As given both X Ltd. and, Y Ltd. are depended with dynamic or decision making of the significant activities for which they are responsible means decisions in regards to a specific movement will be taken consistently and no other party will interfere.

Along these lines, by considering the arrangement given by IFRS 11, Joint Arrangements, it tends to be reasoned that both X Ltd. also, Y Ltd. have joint command over the entity Z Ltd as for the pertinent exercises for which they are responsible.

X Ltd will have control where decisions as for : - Development of Car Seat and Regulatory Approvals.

Y Ltd will have control where choice as for : - producing and Marketing of Car Seat.

ekkarill92 answered 1 year ago

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