Issue 1:Cairns Ltd has recently undertaken a business combination with Townsville Ltd. At the start ofnegotiations, Cairns Ltd owned 30 percent of the shares of Townsville Ltd, and has nowacquired the remaining 70 percent of the shares in Townsville Ltd. The negotiations began on15 August 2014 and enough shareholders in Townsville Ltd agreed to the deal by 31 March2015 for it to proceed. The purchase agreement required shareholders in Townsville Ltd toexchange their shares for shares in Cairns Ltd. Over the negotiation period, the price of CairnsLtd's shares reached a low of $5.40 and a high of $6.20. James Manning is aware that AASB3has to be applied in accounting for business combinations. However, he seeks your adviceconcerning: 1. how to account for Cairns Ltd's original 30 percent interest in Townsville Ltd; 2.the price to use to account for the shares in Cairns Ltd issued to the shareholders in TownsvilleLtd; and 3. How the varying dates such as the date of exchange and the acquisition date affectthe accounting for the business combination.Issue 2:Cairns Ltd intends to maintain Townsville Ltd as a separate operating entity. James Manning isaware that Cairns Ltd will be required to prepare consolidated financial statements at the end ofthe financial year and also that it will need to apply AASB3 Business Combinations inpreparing those statements. However, this has caused some confusion to James as he is notaware of any links between AASB3 and the consolidated accounting standard AASB10. Jameshas asked you to explain why AASB3 may be related to the application of AASB10.As your advice will be submitted to the company's board, James would like to letter of advice toincorporate references to accounting pronouncements, where appropriate.Required:You are required to prepare a business letter addressing the matters on which advice is soughtby James Manning. Your advice should provide clear, succinct answers/explanations andappropriate references to accounting pronouncements.