Question 1

Which of the following statements is correct?

Accepted Answer

A)  Revaluations of assets such as goodwill and inventory are not permitted in the accounting records of the subsidiary. 
B)  Inventories can be revalued to an amount greater than its cost in the records of the subsidiary. 
C)  AASB 3 Business Combinations requires that any revaluations of a subsidiary's assets at acquisition date must be done in the consolidation worksheet. 
D)  The revaluation of non-current assets in the subsidiary's records means that the subsidiary has adopted the cost model of accounting for those assets. 
A)  Revaluations of assets such as goodwill and inventory are not permitted in the accounting records of the subsidiary. 
B)  Inventories can be revalued to an amount greater than its cost in the records of the subsidiary. 
C)  AASB 3 Business Combinations requires that any revaluations of a subsidiary's assets at acquisition date must be done in the consolidation worksheet. 
D)  The revaluation of non-current assets in the subsidiary's records means that the subsidiary has adopted the cost model of accounting for those assets.

Question 2

At the end of any period after acquisition, the business combination entries prepared for the assets and liabilities that were not recorded at fair value at acquisition date and that are sold, fully depreciated or settled during the current period include:

Accepted Answer

A)  no adjustments are required. 
B)  adjustments to the asset or liability account, recognising also the tax effects. 
C)  adjustments to the asset and liability account and to the gains on sale or to expenses generated by depreciation, amortisation or impairment losses or settlement of liabilities, recognising also the tax effects. 
D)  adjustments to the gains on sale or to expenses generated by depreciation, amortisation or impairment losses or settlement of liabilities, recognising also the tax effects. 
A)  no adjustments are required. 
B)  adjustments to the asset or liability account, recognising also the tax effects. 
C)  adjustments to the asset and liability account and to the gains on sale or to expenses generated by depreciation, amortisation or impairment losses or settlement of liabilities, recognising also the tax effects. 
D)  adjustments to the gains on sale or to expenses generated by depreciation, amortisation or impairment losses or settlement of liabilities, recognising also the tax effects.

Question 3

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

Accepted Answer

A)  a transfer to the business combination valuation reserve. 
B)  an increase in the 'Shares in subsidiary' asset. 
C)  a gain on bargain purchase. 
D)  goodwill. 
A)  a transfer to the business combination valuation reserve. 
B)  an increase in the 'Shares in subsidiary' asset. 
C)  a gain on bargain purchase. 
D)  goodwill.

Question 4

Flagstone Limited acquired 100% of the shares in Pebbles Limited on a cum div. basis for $700 000. At acquisition date, the Pebbles Limited had a declared dividend of $80 000. The pre-acquisition entry must include the following line:

Accepted Answer

A)  Dr Shares in subsidiary $620 000 
B)  Cr Shares in subsidiary $620 000 
C)  Cr Shares in subsidiary $80 000 
D)  Cr Shares in subsidiary $780 000 
A)  Dr Shares in subsidiary $620 000 
B)  Cr Shares in subsidiary $620 000 
C)  Cr Shares in subsidiary $80 000 
D)  Cr Shares in subsidiary $780 000

Question 5

The acquisition analysis calculates the fair value of the net identifiable assets and liabilities acquired based on the book value of the pre-acquisition equity of the subsidiary, adjusted for the following:

Accepted Answer

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

Question 6

On 1 July Walter Ltd acquired 100% of the share capital of Kristoff Ltd. At that date, the carrying amount of Kristoff Ltd's machinery was $300 000. The fair value of the machinery on acquisition date was $330 000. The company tax rate was 30%. What is the amount of the business combination valuation reserve that will be recognised on consolidation?

Accepted Answer

A)  $21 000 
B)  $30 000 
C)  $33 000 
D)  $9 000 
A)  $21 000 
B)  $30 000 
C)  $33 000 
D)  $9 000

Question 7

The pre-acquisition entry is necessary to:

Accepted Answer

A)  avoid overstating the equity and net assets of the group. 
B)  avoid understating the equity and net assets of the group. 
C)  avoid overstating the equity and net assets of the parent. 
D)  record the 'shares in subsidiary' account in the parent's records. 
A)  avoid overstating the equity and net assets of the group. 
B)  avoid understating the equity and net assets of the group. 
C)  avoid overstating the equity and net assets of the parent. 
D)  record the 'shares in subsidiary' account in the parent's records.

Question 8

Which of the following statements regarding pre-acquisition entries prepared after acquisition date is incorrect?

Accepted Answer

A)  They are adjusted for transfers between post-acquisition equity accounts. 
B)  They include the pre-acquisition entry prepared at acquisition date adjusted for the effects of all the transfers between pre-acquisition equity accounts and changes in the investment account up to the beginning of the current period. 
C)  They reverse the transfers between pre-acquisition equity accounts and changes in the investment account that happen in the current period. 
D)  They are adjusted for the changes in the investment account recognised by the parent in the subsidiary. 
A)  They are adjusted for transfers between post-acquisition equity accounts. 
B)  They include the pre-acquisition entry prepared at acquisition date adjusted for the effects of all the transfers between pre-acquisition equity accounts and changes in the investment account up to the beginning of the current period. 
C)  They reverse the transfers between pre-acquisition equity accounts and changes in the investment account that happen in the current period. 
D)  They are adjusted for the changes in the investment account recognised by the parent in the subsidiary.

Question 9

At acquisition date, a wholly owned subsidiary had the following equity items. Retairled earmirgs$\quad$$\quad$$\$ 27,500$
BHare capital$\quad$$\quad$$\quad$$\$ 40,000$ In the year following the acquisition, the subsidiary transferred $5 000 from pre-acquisition retained earnings to a general reserve account. At the reporting date following the reserve transfer, which of the following consolidation adjustments is needed?
I. Dr Retained earnings $5 000
Cr General reserve $5 000
II. Dr General reserve $5 000
Cr Transfer to general reserve $5 000
III. Dr General reserve $5 000
Cr Shares in subsidiary $5 000
IV. Dr Shares in subsidiary $5 000
Cr Retained earnings $5 000

Accepted Answer

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

Exam 27: Consolidation: Wholly Owned Entities

Which of the following statements is correct?

At the end of any period after acquisition, the business combination entries prepared for the assets and liabilities that were not recorded at fair value at acquisition date and that are sold, fully depreciated or settled during the current period include:

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

Flagstone Limited acquired 100% of the shares in Pebbles Limited on a cum div. basis for $700 000. At acquisition date, the Pebbles Limited had a declared dividend of $80 000. The pre-acquisition entry must include the following line:

The acquisition analysis calculates the fair value of the net identifiable assets and liabilities acquired based on the book value of the pre-acquisition equity of the subsidiary, adjusted for the following:

The pre-acquisition entry is necessary to:

Which of the following statements regarding pre-acquisition entries prepared after acquisition date 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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