Answer a first question about 300 words, then the second one about 700 words
Brunei Ltd, Burma Ltd and Bhutan Ltd each own one-third of the ordinary shares
that carry voting rights at a general meeting of shareholders of Comoros Ltd.
Brunei Ltd, Burma Ltd and Bhutan Ltd each have the right to appoint two directors
to the board of Comoros Ltd. Brunei Ltd also owns call options that are exercisable
at a fixed price at any time and, if exercised, would give it all the voting rights in
Comoros Ltd. The management of Brunei Ltd does not intend to exercise the
call options, even if Burma Ltd and Bhutan Ltd do not vote in the same manner
as Brunei Ltd.
Discuss whether Comoros Ltd is a subsidiary of any of the other entities.
At the beginning of the current period, Jessica Ltd sold a used depreciable asset
to its wholly owned subsidiary, Amelie Ltd, for $80 000. Jessica Ltd had
originally paid $200 000 for this asset, and at time of sale to Amelie Ltd had
charged depreciation of $150 000. This asset is used differently in Amelie Ltd
from how it was used in Jessica Ltd; thus, whereas Jessica Ltd used
a 10% p.a. straight-line depreciation method, Amelie Ltd uses a 20% straight-line
depreciation method. In calculating the depreciation expense for the
consolidated group (as opposed to that recorded by Amelie Ltd), the group
accountant, RuiFen Xue, is unsure of which amount the depreciation rate should
be applied to ($200 000, $50 000 or $80 000) and which depreciation rate to
use (10% or 20%).
Question (700 words)
Provide a detailed logical response, explaining which depreciation rate should be
used and to what amount it should be applied.