Preheat the oven to 180°C. Grease and line the bases of 12cm, 18cm and 23cm round cake pans (see note).
Beat the butter, sugar and vanilla until light and fluffy. Add eggs one at a time, beating well after each addition. Fold in spoonfuls of flour alternately with milk until just combined. Do not over-beat. Divide mixture between cake pans and place in oven. Bake 12cm cake for 30-35 minutes, 18cm cake for 35-40 minutes and 23cm cake for 40-45 minutes (or until a skewer inserted in each centre comes out clean). Turn out cakes onto a wire rack and allow to cool. Place on a board and make a hole in centre of each with pastry cutters.
For icing, beat together icing sugar, butter, vanilla and enough milk to make a creamy consistency. Divide between 3 bowls - you'll need about 3/4 cup for the smallest cake, 1 1/4 cups for the middle cake and 2 cups for the large cake. Stir a few drops of food colouring into each bowl, if desired. Spread icing over cakes and sprinkle with coconut. Place on a three-tiered cake stand and serve.