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Tutorial 2
Question 1
Explain the concept of control under MFRS 10.
An investor consolidates an investee when it controls the investee. The investor controls an
investee when it is exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over the investee. This
principle applies to all investees, including structured entities.
An investor must possess all of the following elements to be deemed to control an investee:

Power over the investee, which is described as having existing rights that give the
current ability to direct the activities of the investee that significantly affect the
investee's returns (such activities are referred to as the 'relevant activities')
Exposure, or rights, to variable returns from its involvement with the investee
Ability to exert power over the investee to affect the amount of the investor's returns

Question 2
Explain why a bank that extends a loan to a company (which is a subsidiary in a group)
would be more interested in the consolidated financial statements of the group than the
financial statements of the company.
Financial institutions (banks and other lending companies) use them to decide whether to
grant a company with fresh working capital or extend debt securities (such as a long-term
bank loan or debentures) to finance expansion and other significant expenditures.

Question 3
You are the chief accountant of B Bhd, a company incorporated in Malaysia. B Bhd is the
parent of C Bhd. B Bhd is, in turn, a subsidiary of A Bhd.
Part (a)
Discuss the circumstances under which B Bhd is exempted from presenting consolidated
financial statements under MFRS 10.
Part b
A Bhd (a company incorporated in Singapore) is the parent of B Bhd. B Bhd is the parent of
C Bhd. C Bhd is the parent of D Bhd.

In accordance with MFRS 10 Para 4AA, which company is required to prepare consolidated
financial statements?
Part A
In the case of A is preparing consolidated financial statement as A is the Parent company of B
And eventually wil become the parent company of C. Therefore , when A prepares a
consolidated financial statement, B will be exempted from preparing the financial statement.
Part B
B has to prepare a consolidated financial statement for Company C and D. Whereas A would
have to prepare for all the three company
Question 4
Part (a)
Z Bhd was incorporated in January 2011 with 100 million ordinary shares. X Bhd holds 60
million, and Y Bhd holds 40 million of Z Bhds shares.
On 1/1/2012, Z Bhd issued RM100 million convertible bonds to Y Bhd. These bonds are
convertible into 100 million ordinary shares from 1/1/2013. Y Bhd intends to and actually
converts the convertible bonds into shares on 1/1/2014.
For each of the years ended 31 December 2011 through 2014, which company (X Bhd, or Y
Bhd) has control over Z Bhd and therefore has to present consolidated financial statements?
Y has the control over Z and has to prepare the consolidated financial statements
Part (b)
What are the major differences between MFRS 127 (2010) and MFRS 10 in respect of
potential voting rights in determining control?
An investor controls an investee when it is exposed, or has rights,
to variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the
investee. Thus, the principle of control sets out the following three
elements of control:
(a) power over the investee;
(b) exposure, or rights, to variable returns from involvement with
the investee; and
(c) the ability to use power over the investee to affect the amount
of the investors returns.

Part (c)
Refer to the case in Part (a) above. Assume that the companies adopt MFRS 10 on 1/1/2013.
Prior to that, the companies adopted MFRS 127 (2010). If the bonds are convertible from
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1/1/2012 (instead of 1/1/2013), which company (X Bhd, or Y Bhd) has control over Z Bhd in
2012 and therefore has to present consolidated financial statements in 2012 under MFRS 127
(2010)?