Exam 10: Consolidation: Wholly Owned Subsidiaries

Unity Limited acquired 100% of the share capital of Bellvista Limited. Bellvista had issued share capital of $200 000. The book values of Bellvista Limited's assets were: buildings $100 000, machinery $120 000. The fair values of these assets were: buildings $180 000, machinery $140 000. The tax rate is 30%. The fair value of the identifiable net assets is:

The main purpose of the pre-acquisition entry is to ensure no double counting of group net assets and equity.

The effect of a transfer of pre-acquisition retained earnings to a general reserve on the pre-acquisition entry is to reduce the debit adjustment against retained earnings.

There is no recognition of a deferred tax item in respect to goodwill because it is a residual amount and the recognition of a deferred tax item would:

When inventory that has been subject to a fair value adjustment is sold, the effect on the business combination valuation adjustment in the year of sale includes a debit to cost of sales.

According to AASB 3/IFRS 3 Business Combinations, the key principle relating to the disclosure of information about business combinations is to disclose information that:

On 1 January 2017, Cowboys Ltd acquired all the issued shares in Tate Ltd. At that date, the inventory of Tate Ltd had a fair value of $10 000 more than its carrying amount. By 30 June 2018, 75% of the inventory was sold to an entity outside of the group. The business combination valuation consolidation adjustment against inventory in relation to the transaction as at 30 June 2018 will be:

Which of the following statements is incorrect?

If a subsidiary's reporting date does not coincide with the parent entity's reporting date, adjustments must be made for the effects of significant transactions that occur between the two reporting dates provided the reporting dates differ by no more than:

On 1 July 2017, Peter Limited acquired all the issued shares of Kerri Limited for $100 000 when the equity of Kerri Limited consisted of: Share capital $70 000 Retained earnings 30 000 The pre-acquisition entry at 1 July 2014 is: Shares in Kerri Limited Dr 10000 Retained earnings 30000 Share capital 700000 Retained earnings Dr 30000 Share capital 70000 Shares in Kerri Limited 100000 Retained earnings Dr 70000 Share capital Dr 30000 Shares in Kerri Limited 100000 Goodwill Dr 30000 Share capital Dr 70000 Shares in Kerri Limited Cr 100000

With the business combination valuation reserve, the valuation entry establishes the reserve, and the pre-acquisition entry eliminates it because it is by nature pre-acquisition equity.

Where a subsidiary has goodwill already recorded in their books at the date of acquisition, such goodwill should be eliminated in full and then recognised on consolidation.

On 1 July 2017 Good Ltd acquired a 100% interest in Life Ltd. At that time Life Ltd had goodwill of $10 000 recorded in its statement of financial position as a result of a previous business combination. The total goodwill arising on Good's acquisition of Life was $24 000. The goodwill to be recognised on consolidation as a result of Good's acquisition of Life is:

Where an investment in a subsidiary is acquired on an ex div. basis, the fair value of the consideration paid should exclude the amount of the dividend.

Where the consideration transferred is less than the fair value of the identifiable net assets and contingent liabilities acquired, the item must be recognised in the consolidation worksheet as:

If a revaluation of the subsidiary's assets is performed on consolidation, the subsidiary's assets are carried into the consolidated statement of financial position at:

When preparing the business combination valuation entries, there is no recognition of a deferred tax liability for goodwill.

Titans Ltd acquired 100% of Taylor Ltd on 1 July 2017. At acquisition date, Taylor Ltd had the following equity items: - Retained earnings $48 000 - Share capital $66 000 - Business combination revaluation reserve $20 000 In the year following the acquisition, Taylor Ltd paid a bonus share dividend of $28 000 out of pre-acquisition retained earnings. The following consolidation adjustment is needed in the consolidation worksheet for 30 June 2018:

At acquisition date, a wholly owned subsidiary had the following equity items: - Retained earnings $28 000 - Share capital $60 000 - Business combination revaluation reserve $12 000 In the year following the acquisition, the subsidiary transferred $20 000 from pre-acquisition retained earnings to a general reserve account. At the reporting date following the reserve transfer, the following consolidation adjustment is needed:

Which of the following assets cannot be revalued above their cost in the accounting records of the subsidiary?