Question 1

'Control' exists when the parent owns less than half of the voting power of an entity when:

Accepted Answer

A)  No other entity owns more than half either. 
B)  There is power to govern the financial and operating policies of the entity under a statute. 
C)  There is power to govern the financial and operating policies of the entity under an agreement. 
D)  There is power to govern the financial and operating policies of the entity under a statute and there is power to govern the financial and operating policies of the entity under an agreement. 
A)  No other entity owns more than half either. 
B)  There is power to govern the financial and operating policies of the entity under a statute. 
C)  There is power to govern the financial and operating policies of the entity under an agreement. 
D)  There is power to govern the financial and operating policies of the entity under a statute and there is power to govern the financial and operating policies of the entity under an agreement.

Question 2

When group members do not apply the same accounting methods,the consolidation process requires which of the following to be done?

Accepted Answer

A)  All group members must change their accounting policies to be consistent. 
B)  Adjustments must be made on consolidation to remove the effects of the different policies. 
C)  Two sets of consolidated accounts need to be presented; the first done on the basis of the inconsistent policies, the second done after the subsidiaries have adjusted their policies in line with the parent. 
D)  A choice is to be made by the parent's management between any of the three other given answers. 
A)  All group members must change their accounting policies to be consistent. 
B)  Adjustments must be made on consolidation to remove the effects of the different policies. 
C)  Two sets of consolidated accounts need to be presented; the first done on the basis of the inconsistent policies, the second done after the subsidiaries have adjusted their policies in line with the parent. 
D)  A choice is to be made by the parent's management between any of the three other given answers.

Question 3

When an acquirer makes a bargain purchase in a business combination,the excess that remains is recognised in profit or loss of the acquirer on acquisition date.

Accepted Answer

A) True 
 B)False

Question 4

A subsidiary is an entity that is controlled by a parent entity.

Accepted Answer

A) True 
 B)False

Question 5

Explain the circumstances when a bargain purchase may occur and discuss the accounting treatment prescribed in AASB 3 Business Combinations for bargain purchases.

Accepted Answer

A bargain purchase may occur when a comp

Question 6

AASB 10 identifies a number of factors that may indicate the existence of control.These include:

Accepted Answer

A)  the ability to appoint the CEO of another entity. 
B)  the power to dominate the composition of the board of directors or governing body of another entity. 
C)  the power to require another entity to purchase goods and services from an entity that results in a benefit to the controlling entity. 
D)  the ability to appoint the CEO of another entity and the power to dominate the composition of the board of directors or governing body of another entity. 
A)  the ability to appoint the CEO of another entity. 
B)  the power to dominate the composition of the board of directors or governing body of another entity. 
C)  the power to require another entity to purchase goods and services from an entity that results in a benefit to the controlling entity. 
D)  the ability to appoint the CEO of another entity and the power to dominate the composition of the board of directors or governing body of another entity.

Question 7

After initial recognition,goodwill is measured in which of the following ways?

Accepted Answer

A)  at cost 
B)  at fair value 
C)  at cost less accumulated impairment losses 
D)  at cost less accumulated amortisation 
A)  at cost 
B)  at fair value 
C)  at cost less accumulated impairment losses 
D)  at cost less accumulated amortisation

Question 8

Candle Ltd acquires all the issued capital of Wick Ltd for a cash payment of $4 500 000 on 30 June 2014.The statement of financial position of Wick Ltd at purchase date is:   The fair value of the net assets of Wick Ltd as at 30 June 2014 is $3 800 000.What is the consolidation entry to eliminate the investment in Wick Ltd?

Accepted Answer

A) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Share capital } & 2500 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 500 & \
\hline \mathrm { Dr } & \text { Goodwill } & 1500 & \
\hline \mathrm { Cr } & \text { Investment in subsidiary } & & 4500 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Non-current assets } & 800 & \
\hline \mathrm { Cr } & \text { Revaluation surplus } & & 800 \
\hline & & & \
\hline \mathrm { Dr } & \text { Share capital } & 2500 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 500 & \
\hline \mathrm { Dr } & \text { Revaluation surplus } & 800 & \
\hline \mathrm { Dr } & \text { Goodwill } & 700 & \
\hline \mathrm { Cr } & \text { Investment in subsidiary } & & 4500 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Non-current assets } & 800 & \
\hline \mathrm { Cr } & \text { Retained earnings } & & 800 \
\hline & & & \
\hline \mathrm { Dr } & \text { Share capital } & 2500 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 1300 & \
\hline \mathrm { Dr } & \text { Goodwill } & 700 & \
\hline \mathrm { Cr } & \text { Investment in subsidiary } & & 4500 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | c | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Non-current assets } & 800 & \
\hline \mathrm { Cr } & \text { Revaluation surplus } & & 560 \
\hline \mathrm { Cr } & \text { Deferred tax liability } & & 240\
\hline \mathrm { Dr } & \text { Share capital } & 2500 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 500 & \
\hline \mathrm { Dr } & \text { Revaluation surplus } & 800 & \
\hline \mathrm { Dr } & \text { Goodwill } & 700 & \
\hline \mathrm { Cr } & \text { Investment in subsidiary } & & 4500 \
\hline
\end{array}$$ 
A) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Share capital } & 2500 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 500 & \
\hline \mathrm { Dr } & \text { Goodwill } & 1500 & \
\hline \mathrm { Cr } & \text { Investment in subsidiary } & & 4500 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Non-current assets } & 800 & \
\hline \mathrm { Cr } & \text { Revaluation surplus } & & 800 \
\hline & & & \
\hline \mathrm { Dr } & \text { Share capital } & 2500 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 500 & \
\hline \mathrm { Dr } & \text { Revaluation surplus } & 800 & \
\hline \mathrm { Dr } & \text { Goodwill } & 700 & \
\hline \mathrm { Cr } & \text { Investment in subsidiary } & & 4500 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Non-current assets } & 800 & \
\hline \mathrm { Cr } & \text { Retained earnings } & & 800 \
\hline & & & \
\hline \mathrm { Dr } & \text { Share capital } & 2500 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 1300 & \
\hline \mathrm { Dr } & \text { Goodwill } & 700 & \
\hline \mathrm { Cr } & \text { Investment in subsidiary } & & 4500 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | c | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Non-current assets } & 800 & \
\hline \mathrm { Cr } & \text { Revaluation surplus } & & 560 \
\hline \mathrm { Cr } & \text { Deferred tax liability } & & 240\
\hline \mathrm { Dr } & \text { Share capital } & 2500 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 500 & \
\hline \mathrm { Dr } & \text { Revaluation surplus } & 800 & \
\hline \mathrm { Dr } & \text { Goodwill } & 700 & \
\hline \mathrm { Cr } & \text { Investment in subsidiary } & & 4500 \
\hline
\end{array}$$

Question 9

Where separate entities in a group do not apply the same accounting methods,AASB 10 Consolidated Financial Statements prescribes adjustments to be made on consolidation to remove the effects of different accounting policies.

Accepted Answer

A) True 
 B)False

Question 10

The partition effect in relation to a group of companies arose when:

Accepted Answer

A)  It was not permitted under The Corporations Law to consolidate an entity that was not a company. This resulted not only in the non-company entity not being consolidated, but also all the entities (company or otherwise) that it controlled not being consolidated. 
B)  The non-controlling shareholders in a number of companies controlled by a parent entity organised themselves to block the transfer of funds within a group. 
C)  Companies in a group coordinated to transfer assets in such a way as to protect part of the group from being taxed, thus reducing the total tax owing for the group as a whole. 
D)  Dividends were declared and paid in such a way as to manage cash reserves within a group. 
A)  It was not permitted under The Corporations Law to consolidate an entity that was not a company. This resulted not only in the non-company entity not being consolidated, but also all the entities (company or otherwise) that it controlled not being consolidated. 
B)  The non-controlling shareholders in a number of companies controlled by a parent entity organised themselves to block the transfer of funds within a group. 
C)  Companies in a group coordinated to transfer assets in such a way as to protect part of the group from being taxed, thus reducing the total tax owing for the group as a whole. 
D)  Dividends were declared and paid in such a way as to manage cash reserves within a group.

Question 11

At acquisition date which of the following is not required to be recognised by the acquirer?

Accepted Answer

A)  Liabilities assumed. 
B)  non-controlling interest in the acquiree. 
C)  goodwill separately from the identified assets acquired 
D)  Retained earnings of the acquiree. 
A)  Liabilities assumed. 
B)  non-controlling interest in the acquiree. 
C)  goodwill separately from the identified assets acquired 
D)  Retained earnings of the acquiree.

Question 12

What are the major consolidation concepts?

Accepted Answer

A)  entity, partnership and parent 
B)  equity, control and ownership 
C)  parent-entity, ownership and proprietary 
D)  entity, parent-entity and proprietary 
A)  entity, partnership and parent 
B)  equity, control and ownership 
C)  parent-entity, ownership and proprietary 
D)  entity, parent-entity and proprietary

Question 13

The preparation of consolidated financial statements:

Accepted Answer

A)  obviates the need for separate entities to prepare and release their own separate financial statements. 
B)  does not obviate the need for separate entities to prepare and release their own separate financial statements. 
C)  should be done in accordance with AASB 10. 
D)  does not obviate the need for separate entities to prepare and release their own separate financial statements and should be done in accordance with AASB 10. 
A)  obviates the need for separate entities to prepare and release their own separate financial statements. 
B)  does not obviate the need for separate entities to prepare and release their own separate financial statements. 
C)  should be done in accordance with AASB 10. 
D)  does not obviate the need for separate entities to prepare and release their own separate financial statements and should be done in accordance with AASB 10.

Question 14

Discuss the two approaches that may be taken when the subsidiary's assets are not recorded at fair value at the date of acquisition.What implication does the choice between the two methods have on the consolidation accounting process?

Accepted Answer

The two approaches that may be taken whe

Question 15

Jasper Ltd acquires all the issued capital of Carrot Ltd for a cash payment of $2 800 000 on 30 June 2014.The statement of financial position of both entities at purchase date is:   Assuming the assets of Carrot Ltd are recorded at fair value,what is the consolidated statement of financial position at the date of purchase?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 16

Fresco Ltd acquires all the issued capital of Indoor Ltd for a cash payment of $1 000 000 on 30 June 2015.The statement of financial position of Indoor Ltd at purchase date is:   
Assuming the assets of Indoor Ltd are at fair value,what is the entry to eliminate the investment in Fresco Ltd?

Accepted Answer

A) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Share capital } & 900 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 282 & \
\hline \mathrm { Dr } & \text { Accounts payable } & 80 & \
\hline \mathrm { Dr } & \text { Loans } & 1950 & \
\hline \mathrm { Cr } & \text { Excess } & & 2212 \
\hline \mathrm { Cr } & \text { Investment in Indoor Ltd. } & & 1000 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Share capital } & 900 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 282 & \
\hline \mathrm { Dr } & \text { Accounts payable } & 80 & \
\hline \mathrm { Dr } & \text { Loans } & 1950 & \
\hline \mathrm { Cr } & \text { Excess. } & & 2212 \
\hline \mathrm { Cr } & \text { Investment in Indoor Ltd } & & 1000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \text { Dr } & \text { Investment in Indoor Ltd } & 1000 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 282 & \
\hline \mathrm { Dr } & \text { Share capital } & 900 & \
\hline \mathrm { Cr } & \text { Excess } & & 2182 \
\hline & & & \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Share capital } & 900 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 282 & \
\hline \mathrm { Cr } & \text { Excess } & & 182 \
\hline \mathrm { Cr } & \text { Investment in Indoor Ltd } & & 1000 \
\hline & & & \
\hline
\end{array}$$ 
A) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Share capital } & 900 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 282 & \
\hline \mathrm { Dr } & \text { Accounts payable } & 80 & \
\hline \mathrm { Dr } & \text { Loans } & 1950 & \
\hline \mathrm { Cr } & \text { Excess } & & 2212 \
\hline \mathrm { Cr } & \text { Investment in Indoor Ltd. } & & 1000 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Share capital } & 900 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 282 & \
\hline \mathrm { Dr } & \text { Accounts payable } & 80 & \
\hline \mathrm { Dr } & \text { Loans } & 1950 & \
\hline \mathrm { Cr } & \text { Excess. } & & 2212 \
\hline \mathrm { Cr } & \text { Investment in Indoor Ltd } & & 1000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \text { Dr } & \text { Investment in Indoor Ltd } & 1000 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 282 & \
\hline \mathrm { Dr } & \text { Share capital } & 900 & \
\hline \mathrm { Cr } & \text { Excess } & & 2182 \
\hline & & & \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 ) \
\hline \mathrm { Dr } & \text { Share capital } & 900 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 282 & \
\hline \mathrm { Cr } & \text { Excess } & & 182 \
\hline \mathrm { Cr } & \text { Investment in Indoor Ltd } & & 1000 \
\hline & & & \
\hline
\end{array}$$

Question 17

The degree of control over an investee determines how the investor accounts for the investment.

Accepted Answer

A) True 
 B)False

Question 18

In determining control,'potential voting rights':

Accepted Answer

A)  include those rights embedded in such instruments as share call options and share warrants. 
B)  which are currently exercisable should be taken into account. 
C)  even if they are not currently exercisable should be taken into account. 
D)  include those rights embedded in such instruments as share call options and share warrants and which are currently exercisable. 
A)  include those rights embedded in such instruments as share call options and share warrants. 
B)  which are currently exercisable should be taken into account. 
C)  even if they are not currently exercisable should be taken into account. 
D)  include those rights embedded in such instruments as share call options and share warrants and which are currently exercisable.

Question 19

Which of the following statements is not correct?

Accepted Answer

A)  A group comprises a parent and all of its subsidiaries. 
B)  Consolidated financial statements are financial statements of a group of entities presented as if that group was acting as a single economic entity. 
C)  A subsidiary is an entity that is controlled by another entity. 
D)  A parent is an entity that has more than one subsidiary. 
A)  A group comprises a parent and all of its subsidiaries. 
B)  Consolidated financial statements are financial statements of a group of entities presented as if that group was acting as a single economic entity. 
C)  A subsidiary is an entity that is controlled by another entity. 
D)  A parent is an entity that has more than one subsidiary.

Question 20

Sigmund Ltd acquires all the issued capital of Freud Ltd for a cash payment of $1 900 000 on 30 June 2014.The financial statements of both entities on 30 June 2105 are:   The fair value of the net tangible assets of Freud Ltd on 30 June 2014 was $1 332 000.The equity of Freud at that time was made up of share capital of $1 172 000 and retained earnings of $160 000.Goodwill had been determined to have been impaired by $56 800 during the period.During the period ended 30 June 2015 there were no intragroup transactions.Which of the following consolidated financial statements is correct?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Exam 27: Accounting for Group Structures

'Control' exists when the parent owns less than half of the voting power of an entity when:

When group members do not apply the same accounting methods,the consolidation process requires which of the following to be done?

When an acquirer makes a bargain purchase in a business combination,the excess that remains is recognised in profit or loss of the acquirer on acquisition date.

A subsidiary is an entity that is controlled by a parent entity.

Explain the circumstances when a bargain purchase may occur and discuss the accounting treatment prescribed in AASB 3 Business Combinations for bargain purchases.

AASB 10 identifies a number of factors that may indicate the existence of control.These include:

After initial recognition,goodwill is measured in which of the following ways?

Where separate entities in a group do not apply the same accounting methods,AASB 10 Consolidated Financial Statements prescribes adjustments to be made on consolidation to remove the effects of different accounting policies.

The partition effect in relation to a group of companies arose when:

At acquisition date which of the following is not required to be recognised by the acquirer?

What are the major consolidation concepts?

The preparation of consolidated financial statements:

Discuss the two approaches that may be taken when the subsidiary's assets are not recorded at fair value at the date of acquisition.What implication does the choice between the two methods have on the consolidation accounting process?

Fresco Ltd acquires all the issued capital of Indoor Ltd for a cash payment of $1 000 000 on 30 June 2015.The statement of financial position of Indoor Ltd at purchase date is: Assuming the assets of Indoor Ltd are at fair value,what is the entry to eliminate the investment in Fresco Ltd?

The degree of control over an investee determines how the investor accounts for the investment.

In determining control,'potential voting rights':

Which of the following statements is not correct?

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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