Question 1

The preparation of consolidated financial statements involves:

Accepted Answer

A)  adjusting entries in the accounting records of the parent. 
B)  adjusting entries in the accounting records of the subsidiary. 
C)  together the financial statements of the investor and the associate. 
D)  adding together the financial statements of the parent and the subsidiaries. 
A)  adjusting entries in the accounting records of the parent. 
B)  adjusting entries in the accounting records of the subsidiary. 
C)  together the financial statements of the investor and the associate. 
D)  adding together the financial statements of the parent and the subsidiaries. D

Question 2

On 1 January 2021, Brisbane Ltd acquired all the issued shares in Sydney Ltd. At that date, the plant of Sydney Ltd had a fair value of $20 000 more than its carrying amount and an estimated useful life of 5 years. Sydney Ltd depreciates the plant on a straight-line basis. The plant was sold to external parties on 31 December 2022. The business combination valuation entries in relation to the plant for the year ended 30 June 2023 will include:
I. Adjustments to the current depreciation expense
II. Adjustments to retained earnings (opening balance)
III. Transfers from business combination valuation reserve to retained earnings
IV. Adjustments to the plant account to recognise the fair value adjustment at acquisition date

Accepted Answer

A)  III only. 
B)  I, and III only. 
C)  I, II, III and IV. 
D)  I, II and III only. 
A)  III only. 
B)  I, and III only. 
C)  I, II, III and IV. 
D)  I, II and III only. D

Question 3

Leather Limited acquired 100% of the share capital of Vinyl Limited for $235 000. Vinyl had total shareholder's equity of $200 000. The book values of Vinyl Limited's assets were: buildings $150 000, machinery $80 000. The fair values of these assets were: buildings $180 000, machinery $90 000. Also, Vinyl Limited has not previously recorded an internally generated trademark with a fair value of $40 000 and a contingent liability related to a warranty with a fair value of $10 000. The tax rate is 30%. The acquisition analysis will determine:

Accepted Answer

A)  a goodwill of $35 000. 
B)  a goodwill of $14 000. 
C)  a gain on bargain purchase of $21 000. 
D)  a gain on bargain purchase of $14 000. 
A)  a goodwill of $35 000. 
B)  a goodwill of $14 000. 
C)  a gain on bargain purchase of $21 000. 
D)  a gain on bargain purchase of $14 000. D

Question 4

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

Accepted Answer

A)  does not give an advantage to the competitors of a consolidated group. 
B)  provides financial statement users with information about the parent entity only. 
C)  enables financial statement users to evaluate the nature and financial effect of business combinations that occurred during the reporting period. 
D)  enables the preparation of the consolidated financial statements in the most cost-effective manner. 
A)  does not give an advantage to the competitors of a consolidated group. 
B)  provides financial statement users with information about the parent entity only. 
C)  enables financial statement users to evaluate the nature and financial effect of business combinations that occurred during the reporting period. 
D)  enables the preparation of the consolidated financial statements in the most cost-effective manner.

Question 5

Which of the following statements is incorrect?

Accepted Answer

A)  All assets can be revalued in the subsidiary's accounts. 
B)  The fair value adjustments may be made via the consolidation worksheet or in the actual records of the subsidiary. 
C)  If the assets can be revalued in the subsidiary accounts, the increase in value will be recognised as part of the pre-acquisition equity in asset revaluation surplus. 
D)  If the assets are revalued in the consolidation worksheet, the increase in value will be recognised as part of the pre-acquisition equity in the business combination valuation reserve. 
A)  All assets can be revalued in the subsidiary's accounts. 
B)  The fair value adjustments may be made via the consolidation worksheet or in the actual records of the subsidiary. 
C)  If the assets can be revalued in the subsidiary accounts, the increase in value will be recognised as part of the pre-acquisition equity in asset revaluation surplus. 
D)  If the assets are revalued in the consolidation worksheet, the increase in value will be recognised as part of the pre-acquisition equity in the business combination valuation reserve.

Question 6

Kansas Limited has two subsidiary entities, Emma Limited and Goldie Limited. Kansas Limited owns 100% of the shares in both entities. Details of the issued share capital are: $\begin{array}{lr}
\text { Kansas Limited } & \$ 300000 \
\text { Emma Limited } & \$ 90000 \
\text { Goldie Limited } & \$ 75000
\end{array}$ The consolidated share capital amount of the Kansas - Emma - Goldie group is:

Accepted Answer

A)  $135 000 
B)  $465 000 
C)  $165 000 
D)  $300 000 
A)  $135 000 
B)  $465 000 
C)  $165 000 
D)  $300 000

Question 7

On 1 January 2022, Cowboys Ltd acquired all the issued shares in Magpies Ltd. At that date, the inventory of Magpies Ltd had a fair value of $20 000 more than its carrying amount. By 30 June 2022, 75% of the inventory was sold to an entity outside of the group. The business combination valuation consolidation adjustment against the inventory account as at 30 June 2022 will be:

Accepted Answer

A)  DR $15 000 
B)  CR $10 500 
C)  CR $5 000 
D)  DR $5 000 
A)  DR $15 000 
B)  CR $10 500 
C)  CR $5 000 
D)  DR $5 000

Question 8

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:

Accepted Answer

A)  1 months. 
B)  3 months. 
C)  6 month. 
D)  9 months. 
A)  1 months. 
B)  3 months. 
C)  6 month. 
D)  9 months.

Question 9

On 1 January 2022, Lemon Ltd acquired all the issued shares in Meringue Ltd. At that date, Meringue Ltd recognised in the notes to its financial statements a contingent liability with regards to a loan guarantee that had a fair value of $30 000. The contingent liability was settled at 31 December 2022 by Meringue Ltd making a payment of $20 000. Ignoring the tax effect, the business combination valuation entries in relation to the contingent liability for the year ended 30 June 2023 will include:
I. Adjustments to expenses recognised on settlement
II. Transfers from business combination valuation reserve to retained earnings
III. Adjustments to the liability account to recognise the fair value adjustment at acquisition date

Accepted Answer

A)  I only. 
B)  I, II and III only. 
C)  II, III and IV only. 
D)  I, II, III and IV. 
A)  I only. 
B)  I, II and III only. 
C)  II, III and IV only. 
D)  I, II, III and IV.

Question 10

On 1 January 2022, Cowboys Ltd acquired all the issued shares in Magpies Ltd. At that date, the inventory of Magpies Ltd had a fair value of $20 000 more than its carrying amount. By 30 June 2022, 75% of the inventory was sold to an entity outside of the group. The business combination valuation consolidation adjustment for inventories as at 30 June 2023 will include:

Accepted Answer

A)  a debit to inventories of $15 000. 
B)  a debit to cost of sales of $5 000. 
C)  a debit to inventories of $15 000 and a debit to cost of sales of $5 000. 
D)  a credit to inventories of $15 000 and a debit to cost of sales $5 000. 
A)  a debit to inventories of $15 000. 
B)  a debit to cost of sales of $5 000. 
C)  a debit to inventories of $15 000 and a debit to cost of sales of $5 000. 
D)  a credit to inventories of $15 000 and a debit to cost of sales $5 000.

Question 11

At the date of acquisition 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:

Accepted Answer

A)  decrease the profit on consolidation. 
B)  increase the profit on consolidation. 
C)  increase the carrying amount of goodwill. 
D)  decrease the carrying amount of goodwill. 
A)  decrease the profit on consolidation. 
B)  increase the profit on consolidation. 
C)  increase the carrying amount of goodwill. 
D)  decrease the carrying amount of goodwill.

Question 12

The business combination valuation entries are used to recognise:

Accepted Answer

A)  the fair value of the assets not recorded in the subsidiary's accounts at acquisition date. 
B)  the fair value of the liabilities not recorded in the subsidiary's accounts at acquisition date. 
C)  the fair value adjustments for assets and liabilities that were recorded in the subsidiary's accounts at acquisition date based on carrying amounts different from fair value. 
D)  all of the options are correct. 
A)  the fair value of the assets not recorded in the subsidiary's accounts at acquisition date. 
B)  the fair value of the liabilities not recorded in the subsidiary's accounts at acquisition date. 
C)  the fair value adjustments for assets and liabilities that were recorded in the subsidiary's accounts at acquisition date based on carrying amounts different from fair value. 
D)  all of the options are correct.

Question 13

During the consolidation process, it may be necessary to make which of the following adjustments to the individual statements?

Accepted Answer

A)  pre-acquisition entries only. 
B)  business combination valuation entries and pre-acquisition entries in the consolidation worksheet. 
C)  business combination valuation entries only. 
D)  business combination valuation entries and pre-acquisition entries in the individual journals of the parent and the subsidiaries. 
A)  pre-acquisition entries only. 
B)  business combination valuation entries and pre-acquisition entries in the consolidation worksheet. 
C)  business combination valuation entries only. 
D)  business combination valuation entries and pre-acquisition entries in the individual journals of the parent and the subsidiaries.

Question 14

Breeze Limited acquired Zephyr Limited for a purchase consideration of $140 000. At acquisition date the fair value of Zephyr Limited's furniture asset was $40 000 and the carrying amount was $35 000. If the company tax rate is 30%, which of the following is the appropriate adjustment to recognise the tax effect of the business combination revaluation of furniture at acquisition date?

Accepted Answer

A)  DR Deferred tax asset $3 500 
B)  CR Deferred tax asset $3 500 
C)  DR Deferred tax liability $3 500 
D)  CR Deferred tax liability $3 500 
A)  DR Deferred tax asset $3 500 
B)  CR Deferred tax asset $3 500 
C)  DR Deferred tax liability $3 500 
D)  CR Deferred tax liability $3 500

Question 15

Which of the following events can cause a change in the pre-acquisition entry subsequent to acquisition date? I. Depreciation on non-current assets.
II. Transfers to post-acquisition retained earnings.
III. Transfers from pre-acquisition retained earnings.
IV. Bonus dividends paid from pre-acquisition equity

Accepted Answer

A)  III and IV only. 
B)  I, II, III and IV. 
C)  I, III and IV only. 
D)  II and III only. 
A)  III and IV only. 
B)  I, II, III and IV. 
C)  I, III and IV only. 
D)  II and III only.

Question 16

In the periods after acquisition, the gain on bargain purchase will be recognised in the pre-acquisition entries as:

Accepted Answer

A)  no adjustment is necessary. 
B)  a credit to gain for the current period. 
C)  a debit to retained earnings (closing balance). 
D)  a decrease in the amount debited to retained earnings (opening balance). 
A)  no adjustment is necessary. 
B)  a credit to gain for the current period. 
C)  a debit to retained earnings (closing balance). 
D)  a decrease in the amount debited to retained earnings (opening balance).

Question 17

Which of the following assets cannot be revalued above their cost in the accounting records of the subsidiary?
I. Goodwill
II. Inventories
III. Land and buildings
IV. Plant and equipment

Accepted Answer

A)  I, III and IV. 
B)  II, III and IV. 
C)  I and III. 
D)  I and II. 
A)  I, III and IV. 
B)  II, III and IV. 
C)  I and III. 
D)  I and II.

Question 18

Which of the following statements regarding the acquisition analysis is incorrect?

Accepted Answer

A)  It determines whether there is goodwill on acquisition or a gain on bargain purchase. 
B)  It is considered the first step in the consolidation process. 
C)  It calculates and compares the fair value of the consideration transferred with the fair value of the net identifiable assets and liabilities acquired. 
D)  It calculates the fair value of the net identifiable assets and liabilities acquired based on the value of the post-acquisition equity in the subsidiary. 
A)  It determines whether there is goodwill on acquisition or a gain on bargain purchase. 
B)  It is considered the first step in the consolidation process. 
C)  It calculates and compares the fair value of the consideration transferred with the fair value of the net identifiable assets and liabilities acquired. 
D)  It calculates the fair value of the net identifiable assets and liabilities acquired based on the value of the post-acquisition equity in the subsidiary.

Question 19

On 1 July 2019 Debbie Ltd acquired a 100% interest in Stefan Ltd. At that date Stefan Ltd had goodwill of $6 000 recorded in its statement of financial position as a result of a previous business combination. The total goodwill arising on Debbie's acquisition of Stefan was $16 000. The goodwill to be recognised on consolidation as a result of Debbie's acquisition of Stefan is:

Accepted Answer

A)  nil. 
B)  $6 000. 
C)  $7 000. 
D)  $10 000. 
A)  nil. 
B)  $6 000. 
C)  $7 000. 
D)  $10 000.

Question 20

On 1 January 2022, Cowboys Ltd acquired all the issued shares in Dragon Ltd. At that date, the plant of Dragon Ltd had a fair value of $10 000 more than its carrying amount and an estimated useful life of 5 years. Dragon Ltd depreciates the plant on a straight-line basis. The plant was sold during the year ended on 30 June 2023. The business combination valuation consolidation adjustment against plant in relation to the transaction as at 30 June 2023 will be:

Accepted Answer

A)  a debit of $10 000. 
B)  a credit of $10 000. 
C)  a debit of $2 000. 
D)  there is no adjustment entry recorded against the plant account. 
A)  a debit of $10 000. 
B)  a credit of $10 000. 
C)  a debit of $2 000. 
D)  there is no adjustment entry recorded against the plant account.

Exam 27: Consolidation: Wholly Owned Entities

The preparation of consolidated financial statements involves:

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

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:

At the date of acquisition 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:

The business combination valuation entries are used to recognise:

During the consolidation process, it may be necessary to make which of the following adjustments to the individual statements?

In the periods after acquisition, the gain on bargain purchase will be recognised in the pre-acquisition entries as:

Which of the following assets cannot be revalued above their cost in the accounting records of the subsidiary? I. Goodwill II. Inventories III. Land and buildings IV. Plant and equipment

Which of the following statements regarding the acquisition analysis is incorrect?

Accounting Regulation and the Conceptual Framework

Application of Accounting Theory

Fair Value Measurement

Inventories

Property, Plant and Equipment

Intangible Assets

Impairment of Assets

Provisions, Contingent Liabilities and Contingent Assets

Employee Benefits

Leases

Financial Instruments

Income Taxes

Share Capital and Reserves

Share Based Payment

Revenue

Presentation of Financial Statements

Statement of Cash Flows

Accounting Policies and Other Disclosures

Earnings Per Share

Operating Segments

Related Party Disclosures

Sustainability and Corporate Social Responsibility Recording

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Foreign Currency Financial Statements

Business Combinations

Consolidation: Controlled Entities

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Joint Arrangements

Insolvency and Liquidation

Accounting for Mineral Resources

Agriculture

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