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In: Accounting

On 1 June 2019 Flawless Ltd sold land to Connell Ltd at fair value. The consideration...

On 1 June 2019 Flawless Ltd sold land to Connell Ltd at fair value. The consideration paid to Flawless Ltd comprised cash and options. The options can be converted into ordinary shares in Connell Ltd at any time over the next seven years. If the options were exercised, Flawless Ltd would hold 65% of the voting rights in Connell Ltd. Flawless Ltd does not intend to exercise the options as they are not interested in obtaining an ownership interest in Connell Ltd. Also, Flawless Ltd is not interested in contributing to the decision making of Connell Ltd. Furthermore, even though Flawless Ltd can obtain the financial resources to exercise the options they would prefer to invest their money elsewhere. Connell Ltd is listed on the Australian Stock Exchange. As at 30 June 2019 Flawless Ltd owns no shares in Connell Ltd.

Required:

Discuss, clearly stating your reasons whether Flawless Ltd has control of Connell Ltd as at 30 June 2019.

Solutions

Expert Solution

Facts of the Case: 0n 01.06.2019 in exchange of lad consideration paid as Cash and options to convert into shares of the Connell. Conversion will lead to 65% voting right as well as controllership in Connell. BUt Flawless is not interested in investing in Connell and have invested else where and as on 30 june hold no shares in Connell ltd.

As on 30.06.2019 it is clearly stated that Flawless is not holding any share in the connell Ltd. it clearly specify that flawless dont hold any controllership in connell ltd.

Control means ability to control the operating decision of the organisation and not only interested in the assets of the company, suppose even after getting 65% of options subscribed in Connell ltd, the flawless is not controlling the decsion making or synergy or operation of the connell ltd, it is apparent that the controll is not in the hands of the flawless ltd.

Taking into both sides of the coin, Flawless ltd. not hold any control in the business of the connell ltd. as on 30.6.2019.

ekkarill92 answered 2 years ago
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