Question 1

Adjustments made for the purpose of calculating the incremental adjustment to the share of profit of an associate are:

Accepted Answer

A)  recognised in the books of the investor. 
B)  recognised in the books of the investee. 
C)  notional adjustments and not included in the books of the investee. 
D)  relate to realised transactions and so are recognised directly by the investee. 
A)  recognised in the books of the investor. 
B)  recognised in the books of the investee. 
C)  notional adjustments and not included in the books of the investee. 
D)  relate to realised transactions and so are recognised directly by the investee.

Question 2

Warriors Limited acquired a 20% share in Tomkins Limited for $36 000. Warriors Limited has no other investments. At the date on which it became an associate, Tomkins Limited had the following equity:
 -share capital $100 000
-retained earnings $80 000.
At the end of the financial year following the investment, Tomkins Limited generated a profit after tax of $12 000. After applying the equity method of accounting, Warriors Limited will have which of the following carrying amounts for the investment?

Accepted Answer

A)  $38 400 
B)  $36 000 
C)  $33 600 
D)  $18 400 
A)  $38 400 
B)  $36 000 
C)  $33 600 
D)  $18 400

Question 3

Where an investor has significant influence over an associate, the method of accounting used to account for such interests is referred to as the partial consolidation method.

Accepted Answer

A) True 
 B)False

Question 4

Where the investor does not prepare consolidated financial statements and a dividend is received from an associate, the entry in the investor's books on receipt of the dividend involves a credit adjustment against dividend revenue.

Accepted Answer

A) True 
 B)False

Question 5

Fair value and goodwill adjustments arising on the acquisition of an associate are recognised separately in the books of the investor.

Accepted Answer

A) True 
 B)False

Question 6

On 1 July 2016 Titans Ltd acquired a 25% share of Taylor Ltd. At that date, the following assets had carrying amounts different to their fair values in Taylor's books. $$\begin{array} { | l | c | l | } 
\hline \text { Asset } & \begin{array} { c } 
\text { Carrying } \
\text { amount }
\end{array} & \text { Fair value } \
\hline \text { Inventories } & \$ 24000 & \$ 30000 \
\hline \text { Machinery } & \$ 48000 & \$ 60000 \
\hline
\end{array}$$ All inventories were sold to third parties by 30 June 2017. On 1 July 2016, the machinery had a remaining useful life of 3 years.
The tax rate is 30%.
The adjustment required to the investment in associate account at 30 June 2018 in relation to the above assets is:

Accepted Answer

A)  $1000. 
B)  $2450. 
C)  $2800. 
D)  $3500. 
A)  $1000. 
B)  $2450. 
C)  $2800. 
D)  $3500.

Question 7

Where an investor sells inventories to an associate and the inventories are still on hand at the end of the year, the investor's share of the associate's profit is:

Accepted Answer

A)  not affected as unrealised profits are only considered to arise in a parent-subsidiary relationship. 
B)  not affected as the unrealised profit is in the books of the investor, not the associate. 
C)  increased by the investor's share of the unrealised profit. 
D)  decreased by the investor's share of the unrealised profit. 
A)  not affected as unrealised profits are only considered to arise in a parent-subsidiary relationship. 
B)  not affected as the unrealised profit is in the books of the investor, not the associate. 
C)  increased by the investor's share of the unrealised profit. 
D)  decreased by the investor's share of the unrealised profit.

Question 8

When goodwill in an associate is acquired by an investor, the amortisation of goodwill is:

Accepted Answer

A)  spread evenly across the useful life of the investment. 
B)  not permitted. 
C)  included in the determination of the investor's share of the associate's profit or loss. 
D)  included in the revaluation of the investment. 
A)  spread evenly across the useful life of the investment. 
B)  not permitted. 
C)  included in the determination of the investor's share of the associate's profit or loss. 
D)  included in the revaluation of the investment.

Question 9

Where an investor has discontinued the use of the equity method because the associate has incurred losses, it must disclose the:

Accepted Answer

A)  unrecognised share of current period and cumulative losses of the associate. 
B)  reason why it has discontinued the method. 
C)  accounting policy it has adopted in place of the equity method. 
D)  effect on the statement of changes in equity if it had continued to use the method. 
A)  unrecognised share of current period and cumulative losses of the associate. 
B)  reason why it has discontinued the method. 
C)  accounting policy it has adopted in place of the equity method. 
D)  effect on the statement of changes in equity if it had continued to use the method.

Question 10

Where the investor is not a parent, the investor applies:

Accepted Answer

A)  the cost method to its associates in its own accounting records. 
B)  the equity method to its associates and subsidiaries in the consolidated financial statements. 
C)  the fair value method to its associates in its own accounting records. 
D)  the equity method to its associates in its own accounting records. 
A)  the cost method to its associates in its own accounting records. 
B)  the equity method to its associates and subsidiaries in the consolidated financial statements. 
C)  the fair value method to its associates in its own accounting records. 
D)  the equity method to its associates in its own accounting records.

Question 11

The investor's share of current period profits is disclosed as a separate line item in the statement of profit or loss and other comprehensive income.

Accepted Answer

A) True 
 B)False

Question 12

The basic premise under the equity method is that the investor is entitled to a share of the post-acquisition movements in the net assets of the associate.

Accepted Answer

A) True 
 B)False

Question 13

The classification of an investment as an associate relies on the existence of significant influence.

Accepted Answer

A) True 
 B)False

Question 14

The holding of debentures by an investor in an associate, and the payment of interest on those debentures, requires adjustment under equity accounting.

Accepted Answer

A) True 
 B)False

Question 15

Voyager Ltd acquired a 40% interest in Sea Ltd for $60 000. Voyager Ltd is part of a consolidated group. In the financial period immediately following the date on which it became an associate, Sea Ltd generated profits after tax of $32 000 and paid a dividend of $6000. After equity accounting has been applied, the balance in the investor's account 'shares in associate' is:

Accepted Answer

A)  $72 800. 
B)  $70 400. 
C)  $60 000. 
D)  $86 000. 
A)  $72 800. 
B)  $70 400. 
C)  $60 000. 
D)  $86 000.

Question 16

Lady Ltd owns 25% of Gaga Ltd. Gaga's profit after tax for the year ended 30 June 2017 is $60 000. The tax rate is 30%. During the year ended 30 June 2017, Lady sold $10 000 worth of inventories to Gaga. These items had previously cost Lady $6000. All the items remain unsold by Gaga at 30 June 2017. Lady's share of Gaga's profit for the year ended 30 June 2017 is:

Accepted Answer

A)  $11 000. 
B)  $12 500. 
C)  $14 300. 
D)  $14 000. 
A)  $11 000. 
B)  $12 500. 
C)  $14 300. 
D)  $14 000.

Question 17

On 1 July 2012 Girls Ltd acquired 25% of the shares of Spice Ltd for $200 000. At that date the equity of Spice Ltd was $800 000, with all identifiable assets and liabilities being measured at fair value. Profits/(losses) made since the date of acquisition are as follows. $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Year ended } \
30 \text { June }
\end{array} & \text { Profit/(Loss) } \
&\$\
\hline 2013 & 40000 \
\hline 2014 & ( 400000 ) \
\hline 2015 & ( 500000 ) \
\hline 2016 & 32000 \
\hline 2017 & 40000 \
\hline
\end{array}$$ There have been no dividends paid or movements in reserves since the date of acquisition.
At 30 June 2017 the equity accounted balance of the investment in Spice was:

Accepted Answer

A)  nil. 
B)  $3000. 
C)  $10 000. 
D)  $40 000. 
A)  nil. 
B)  $3000. 
C)  $10 000. 
D)  $40 000.

Question 18

The contractually agreed sharing of control of an arrangement which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control is referred to as:

Accepted Answer

A)  joint control. 
B)  contractual control. 
C)  unanimous control. 
D)  shared control. 
A)  joint control. 
B)  contractual control. 
C)  unanimous control. 
D)  shared control.

Question 19

On 1 July 2012 Girls Ltd acquired 25% of the shares of Spice Ltd for $200 000. At that date the equity of Spice Ltd was $800 000, with all identifiable assets and liabilities being measured at fair value. Profits/(losses) made since the date of acquisition are as follows. $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Year ended } \
30 \text { June }
\end{array} & \text { Profit/(Loss) } \
&\$\
\hline 2013 & 40000 \
\hline 2014 & ( 400000 ) \
\hline 2015 & ( 500000 ) \
\hline 2016 & 32000 \
\hline 2017 & 40000 \
\hline
\end{array}$$ There have been no dividends paid or movements in reserves since the date of acquisition.
At 30 June 2016 the equity accounted balance of the investment in Spice was:

Accepted Answer

A)  nil. 
B)  ($7000). 
C)  $8000. 
D)  $32 000. 
A)  nil. 
B)  ($7000). 
C)  $8000. 
D)  $32 000.

Question 20

Where there are transactions between the investor and associate that result in an unrealised profit, the investor's share of the associate's profit is:

Accepted Answer

A)  not adjusted at all regardless of whether the transaction is an upstream or downstream one. 
B)  adjusted only if the transaction is an upstream one. 
C)  adjusted only if the transaction is a downstream one. 
D)  adjusted regardless of whether the transaction is an upstream or downstream one. 
A)  not adjusted at all regardless of whether the transaction is an upstream or downstream one. 
B)  adjusted only if the transaction is an upstream one. 
C)  adjusted only if the transaction is a downstream one. 
D)  adjusted regardless of whether the transaction is an upstream or downstream one.

Adjustments made for the purpose of calculating the incremental adjustment to the share of profit of an associate are:

Where an investor has significant influence over an associate, the method of accounting used to account for such interests is referred to as the partial consolidation method.

Where the investor does not prepare consolidated financial statements and a dividend is received from an associate, the entry in the investor's books on receipt of the dividend involves a credit adjustment against dividend revenue.

Fair value and goodwill adjustments arising on the acquisition of an associate are recognised separately in the books of the investor.

Where an investor sells inventories to an associate and the inventories are still on hand at the end of the year, the investor's share of the associate's profit is:

When goodwill in an associate is acquired by an investor, the amortisation of goodwill is:

Where an investor has discontinued the use of the equity method because the associate has incurred losses, it must disclose the:

Where the investor is not a parent, the investor applies:

The investor's share of current period profits is disclosed as a separate line item in the statement of profit or loss and other comprehensive income.

The basic premise under the equity method is that the investor is entitled to a share of the post-acquisition movements in the net assets of the associate.

The classification of an investment as an associate relies on the existence of significant influence.

The holding of debentures by an investor in an associate, and the payment of interest on those debentures, requires adjustment under equity accounting.

The contractually agreed sharing of control of an arrangement which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control is referred to as:

Where there are transactions between the investor and associate that result in an unrealised profit, the investor's share of the associate's profit is:

Nature and Regulation of Companies

Financing Company Operations

Business Combinations

Disclosure: Legal Requirements and Accounting Polices

Disclosure: Presentation of Financial Statements

Disclosure: Statement of Cash Flows

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Financial Statements Into a Presentation Currency

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Joint Arrangements

Insolvency and Liquidation

Accounting for Company Income Tax

Property, Plant Equipment

Filters

Exam 14: Associates and Joint Ventures

Adjustments made for the purpose of calculating the incremental adjustment to the share of profit of an associate are:

Where an investor has significant influence over an associate, the method of accounting used to account for such interests is referred to as the partial consolidation method.

Where the investor does not prepare consolidated financial statements and a dividend is received from an associate, the entry in the investor's books on receipt of the dividend involves a credit adjustment against dividend revenue.

Fair value and goodwill adjustments arising on the acquisition of an associate are recognised separately in the books of the investor.

Where an investor sells inventories to an associate and the inventories are still on hand at the end of the year, the investor's share of the associate's profit is:

When goodwill in an associate is acquired by an investor, the amortisation of goodwill is:

Where an investor has discontinued the use of the equity method because the associate has incurred losses, it must disclose the:

Where the investor is not a parent, the investor applies:

The investor's share of current period profits is disclosed as a separate line item in the statement of profit or loss and other comprehensive income.

The basic premise under the equity method is that the investor is entitled to a share of the post-acquisition movements in the net assets of the associate.

The classification of an investment as an associate relies on the existence of significant influence.

The holding of debentures by an investor in an associate, and the payment of interest on those debentures, requires adjustment under equity accounting.

The contractually agreed sharing of control of an arrangement which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control is referred to as:

Where there are transactions between the investor and associate that result in an unrealised profit, the investor's share of the associate's profit is:

Nature and Regulation of Companies

Financing Company Operations

Business Combinations

Disclosure: Legal Requirements and Accounting Polices

Disclosure: Presentation of Financial Statements

Disclosure: Statement of Cash Flows

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Financial Statements Into a Presentation Currency

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Joint Arrangements

Insolvency and Liquidation

Accounting for Company Income Tax

Property, Plant Equipment

Filters