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. C

Question 2

The following information relates to questions 
Nero Ltd purchased a 30% per cent shareholding in Bianco Ltd on 1 January 20X8 for $180 000. Bianco Ltd's assets recorded at fair values and its owners' equity, totalling $520 000, was represented as follows:
$\begin{array} { l r } 
\text { Share capital } & \$ 260,000 \
\text { Reserves } & \$ 120,000 \
\text { Retained profits } & \$ 100,000 \
\text { Asset revaluation reserve } & \$ 40,000
\end{array}$
During July 20X8, Bianco Ltd paid an interim dividend of $18 000. At 31 December 20X8, Bianco Ltd reported:
$\begin{array} { l l } 
\text { Profit for 20X8 } & \$ 48,000 \
\text { Final dividend payable } & \$ 14,000 \
\text { A transfer to the general reserve } & \$ 10,000 \
\text { Increase of the asset revaluation reserve to } & \$ 70,000 .
\end{array}$
-Assuming that Nero Ltd applies the equity method in its own books the entry to record the dividend receivable from Bianco Ltd at 31 December 20X9 would include:

Accepted Answer

A)  a credit to the dividend revenue account. 
B)  a credit to the investment in associate account. 
C)  a debit to the dividend revenue account. 
D)  a debit to the investment in associate account. 
A)  a credit to the dividend revenue account. 
B)  a credit to the investment in associate account. 
C)  a debit to the dividend revenue account. 
D)  a debit to the investment in associate account. B

Question 3

Investor Limited acquired a 30% interest in Investee Limited for $27 000. Investor holds other equity investments but does not prepare consolidated financial statements. Investee Limited revalued its buildings class of assets by $10 000 during the current financial period. The balance of the investment in associate account at the end of the current financial period is:

Accepted Answer

A)  $11 100; 
B)  $18 100; 
C)  $27 000; 
D)  $30 000. 
A)  $11 100; 
B)  $18 100; 
C)  $27 000; 
D)  $30 000. D

Question 4

On 1 July 20X8 Berardo Ltd acquired 25% of the ordinary issued share capital of Ricky Ltd for $375 000. This investment gave rise to significant influence.
The share capital and reserves of Ricky Ltd at 1 July 20X8 were:
$\begin{array}{ll}&\$\
\text { Share capital } & 400,000 \
\text { General reserve } & 250,000 \
\text { Retained earnings } & 275,000\&925,000
\end{array}$
All the identifiable net assets of Ricky Ltd were stated at fair value at the date of acquisition except for a building whose carrying value was $50 000 less than the fair value. Goodwill arising on Berardo's acquisition of Ricky was:

Accepted Answer

A)  $131 250 
B)  $135 000 
C)  $143 750 
D)  $150 000 
A)  $131 250 
B)  $135 000 
C)  $143 750 
D)  $150 000

Question 5

The following information relates to questions
On 1 July 20X3 Alpha Ltd acquired a 25% share of Beta Ltd. At that date the following assets had carrying amounts different to their fair values in Beta's books:
$\begin{array}{|l|l|l|}
\hline \text { Asset } & \begin{array}{c}
\text { Carrying } \
\text { amount }
\end{array} & \text { Fair value } \
\hline \text { Inventory } & \$ 12,000 & \$ 15,000 \
\hline \text { Machinery } & \$ 24,000 & \$ 30,000 \
\hline
\end{array}$
All inventory was sold to third parties by 30 June 20X4. On 1 July 20X3, 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 20X5 in relation to the above assets is:

Accepted Answer

A)  $500 
B)  $1225 
C)  $1400 
D)  $1750 
A)  $500 
B)  $1225 
C)  $1400 
D)  $1750

Question 6

The following information relates to questions 
On 1 July 2013 Joey Ltd acquired 25% of the shares of Leao Ltd for $100 000. At that date the equity of Leo Ltd was $400 000, with all identifiable assets and liabilities being measured at fair value. Profits/(losses) made since the date of acquisition are as follows:
$\begin{array}{|c|c|}
\hline \begin{array}{c}
\text { Year ended } \
30 \text { June }
\end{array} & \begin{array}{c}
\text { Profit/(Loss) } \
\$
\end{array} \
\hline 20 \mathrm{X} 5 & 20,000 \
\hline 20 \mathrm{X} 6 & (200,000) \
\hline 20 \mathrm{X} 7 & (250,000) \
\hline 20 \mathrm{X} 8 & 16,000 \
\hline 20 \mathrm{X} 9 & 20,000 \
\hline
\end{array}$
There have been no dividends paid or movements in reserves since the date of acquisition.
-At 30 June 20X7 the equity accounted balance of the investment in Leo was:

Accepted Answer

A)  NIL 
B)  ($3500) 
C)  $4000 
D)  $16 000 
A)  NIL 
B)  ($3500) 
C)  $4000 
D)  $16 000

Question 7

The following information relates to questions 
Nero Ltd purchased a 30% per cent shareholding in Bianco Ltd on 1 January 20X8 for $180 000. Bianco Ltd's assets recorded at fair values and its owners' equity, totalling $520 000, was represented as follows:
$\begin{array} { l r } 
\text { Share capital } & \$ 260,000 \
\text { Reserves } & \$ 120,000 \
\text { Retained profits } & \$ 100,000 \
\text { Asset revaluation reserve } & \$ 40,000
\end{array}$
During July 20X8, Bianco Ltd paid an interim dividend of $18 000. At 31 December 20X8, Bianco Ltd reported:
$\begin{array} { l l } 
\text { Profit for 20X8 } & \$ 48,000 \
\text { Final dividend payable } & \$ 14,000 \
\text { A transfer to the general reserve } & \$ 10,000 \
\text { Increase of the asset revaluation reserve to } & \$ 70,000 .
\end{array}$
-The equity carrying amount of the investment in Bianco Ltd at 31 December 20X8 is:

Accepted Answer

A)  $199 200 
B)  $202 200 
C)  $203 400 
D)  $211 200 
A)  $199 200 
B)  $202 200 
C)  $203 400 
D)  $211 200

Question 8

Gunawan Limited acquired a 20% share in Juliano Limited for $18 000. Gunawan Limited has no other investments. At the date on which it became an associate, Juliano Limited had the following equity:
Share capital $50 000
Retained earnings $40 000
At the end of the financial year following the investment, Juliano Limited generated a profit of $6000. After applying the equity method of accounting, Gunawan Limited will have the following carrying amount for the investment:

Accepted Answer

A)  $9200; 
B)  $16 800; 
C)  $18 000; 
D)  $19 200. 
A)  $9200; 
B)  $16 800; 
C)  $18 000; 
D)  $19 200.

Question 9

For the purposes of equity accounting, significant influence is regarded as the power of an investor to:

Accepted Answer

A)  control the financial and operating policies of an associate; 
B)  participate in the financial and operating policy decisions of an investee; 
C)  participate in the day-to-day management of a joint venture interest; 
D)  dominate the financing decisions of an entity. 
A)  control the financial and operating policies of an associate; 
B)  participate in the financial and operating policy decisions of an investee; 
C)  participate in the day-to-day management of a joint venture interest; 
D)  dominate the financing decisions of an entity.

Question 10

Which of the following statements is correct?

Accepted Answer

A)  All joint arrangements are accounted for under AASB 128. 
B)  Joint arrangements classified as joint ventures are accounted for under AASB 11. 
C)  Joint arrangements classified as joint ventures are accounted for under AASB 128. 
D)  Joint arrangements classified as joint operations are accounted for under AASB 128. 
A)  All joint arrangements are accounted for under AASB 128. 
B)  Joint arrangements classified as joint ventures are accounted for under AASB 11. 
C)  Joint arrangements classified as joint ventures are accounted for under AASB 128. 
D)  Joint arrangements classified as joint operations are accounted for under AASB 128.

Question 11

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 12

The following information relates to questions 
On 1 July 2013 Joey Ltd acquired 25% of the shares of Leao Ltd for $100 000. At that date the equity of Leo Ltd was $400 000, with all identifiable assets and liabilities being measured at fair value. Profits/(losses) made since the date of acquisition are as follows:
$\begin{array}{|c|c|}
\hline \begin{array}{c}
\text { Year ended } \
30 \text { June }
\end{array} & \begin{array}{c}
\text { Profit/(Loss) } \
\$
\end{array} \
\hline 20 \mathrm{X} 5 & 20,000 \
\hline 20 \mathrm{X} 6 & (200,000) \
\hline 20 \mathrm{X} 7 & (250,000) \
\hline 20 \mathrm{X} 8 & 16,000 \
\hline 20 \mathrm{X} 9 & 20,000 \
\hline
\end{array}$
There have been no dividends paid or movements in reserves since the date of acquisition.
-At 30 June 20X8 the equity accounted balance of the investment in Leo was:

Accepted Answer

A)  NIL 
B)  $1500 
C)  $5000 
D)  $20 000 
A)  NIL 
B)  $1500 
C)  $5000 
D)  $20 000

Question 13

When disclosing information about investments in associates, AASB 128 Investments in Associates and Joint Ventures, requires separate disclosure of which of the following?
I Shares in associates, in the statement of financial position.
II Share of profit or loss of associates, in the statement of profit or loss and other comprehensive income.
III Share of any discontinuing operations, in the statement of changes in equity.
IV Shares of changes recognised directly in the associate's equity, in the statement of changes in equity.

Accepted Answer

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

Question 14

Where an acquisition in an associate results in an excess the excess is accounted for in the year of acquisition as follows:

Accepted Answer

A)  as a credit against the investment in associate account. 
B)  as a credit against the share of associate profit account. 
C)  as a debit against the share of associates retained earnings 
D)  no adjustment is required due to the single line method of accounting followed under the equity method. 
A)  as a credit against the investment in associate account. 
B)  as a credit against the share of associate profit account. 
C)  as a debit against the share of associates retained earnings 
D)  no adjustment is required due to the single line method of accounting followed under the equity method.

Question 15

If an associate incurs losses the investor is required to:

Accepted Answer

A)  ignore the losses for the purposes of equity accounting adjustments; 
B)  recognise losses only to the point where the carrying amount is equal to the initial investment; 
C)  recognise losses to the point where the carrying amount of the investment is zero; 
D)  reclassify the investment as a current asset. 
A)  ignore the losses for the purposes of equity accounting adjustments; 
B)  recognise losses only to the point where the carrying amount is equal to the initial investment; 
C)  recognise losses to the point where the carrying amount of the investment is zero; 
D)  reclassify the investment as a current asset.

Question 16

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

Question 17

For the purposes of equity accounting for an investment in an associate, it is presumed that the investor has significant influence over the other entity where the investor holds:

Accepted Answer

A)  between 1% and 5% of the voting power of the investee; 
B)  between 5% and 10% of the voting power of the investee. 
C)  20% or more of the voting power of the investee; 
D)  50% or more of the voting power of the investee; 
A)  between 1% and 5% of the voting power of the investee; 
B)  between 5% and 10% of the voting power of the investee. 
C)  20% or more of the voting power of the investee; 
D)  50% or more of the voting power of the investee;

Question 18

Where an investor sells inventory to an associate and the inventory is still on hand at the end of the year the investor's share of the associate's profits 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 19

Clovelly Ltd, owns 25% of Bronte Ltd. Bronte's profit after tax for the year ended 30 June 20X3 is $30 000. The tax rate is 30%. During the year ended 30 June 20X4, Bronte sold $5000 worth of inventory to Clovelly. These items had previously cost Bronte $3000. All the items remain unsold by the Clovelly at 30 June 20X3. Clovelly's share of Bronte's profit for the year ended 30 June 20X3 is:

Accepted Answer

A)  $5500 
B)  $6250 
C)  $7150 
D)  $7000 
A)  $5500 
B)  $6250 
C)  $7150 
D)  $7000

Question 20

Codger Limited acquired a 40% investment in Lodger Limited for $50 000. Lodger declared and paid a dividend of $10 000. Codger Limited does not prepare consolidated financial statements. The appropriate entry for the investor to record this dividend is:

Accepted Answer

A)  $\begin{array} { l l r } 
\text { DR\quad Cash } & \$ 4000 \
 \text { CR\quad Investment in associate } & \$ 4000 ;
\end{array}$ 
B)  $\text { DR\quad Dividends payable } \quad \$ 4000$
$\text { CR\quad Cash } \quad \$ 4000$ 
C)  $\begin{array}{llc}
\text { DR } & \text { Cash } & \$ 4000 \
& \text { CR Dividend revenue } & \$ 4000 ;
\end{array}$ 
D) DR Investment in associate $\quad \$ 4000 $
CR Dividend revenue $ \quad \$ 4000 $. 
A)  $\begin{array} { l l r } 
\text { DR\quad Cash } & \$ 4000 \
 \text { CR\quad Investment in associate } & \$ 4000 ;
\end{array}$ 
B)  $\text { DR\quad Dividends payable } \quad \$ 4000$
$\text { CR\quad Cash } \quad \$ 4000$ 
C)  $\begin{array}{llc}
\text { DR } & \text { Cash } & \$ 4000 \
& \text { CR Dividend revenue } & \$ 4000 ;
\end{array}$ 
D) DR Investment in associate $\quad \$ 4000 $
CR Dividend revenue $ \quad \$ 4000 $.

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

For the purposes of equity accounting, significant influence is regarded as the power of an investor to:

Which of the following statements is correct?

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

Where an acquisition in an associate results in an excess the excess is accounted for in the year of acquisition as follows:

If an associate incurs losses the investor is required to:

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:

For the purposes of equity accounting for an investment in an associate, it is presumed that the investor has significant influence over the other entity where the investor holds:

Where an investor sells inventory to an associate and the inventory is still on hand at the end of the year the investor's share of the associate's profits is:

Codger Limited acquired a 40% investment in Lodger Limited for $50 000. Lodger declared and paid a dividend of $10 000. Codger Limited does not prepare consolidated financial statements. The appropriate entry for the investor to record this dividend is:

Accounting Regulation and the Conceptual Framework

Application of Accounting Theory

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Provisions, Contingent Liabilities and Contingent Assets

Income Taxes

Financial Instruments

Share-Based Payments

Translation of the Financial Statements of Foreign Entities

Employee Benefits

Inventories

Property, Plant and Equipment

Leases

Understanding Australian Accounting Standards

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Business Combinations

Consolidation: Principles and Accounting Requirements

Consolidation: Intragroup Transactions

Consolidation: Non Controlling Interest

Joint Arrangements

Filters

Exam 30: Associates and Joint Ventures

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

For the purposes of equity accounting, significant influence is regarded as the power of an investor to:

Which of the following statements is correct?

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

Where an acquisition in an associate results in an excess the excess is accounted for in the year of acquisition as follows:

If an associate incurs losses the investor is required to:

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:

For the purposes of equity accounting for an investment in an associate, it is presumed that the investor has significant influence over the other entity where the investor holds:

Where an investor sells inventory to an associate and the inventory is still on hand at the end of the year the investor's share of the associate's profits is:

Codger Limited acquired a 40% investment in Lodger Limited for $50 000. Lodger declared and paid a dividend of $10 000. Codger Limited does not prepare consolidated financial statements. The appropriate entry for the investor to record this dividend is:

Accounting Regulation and the Conceptual Framework

Application of Accounting Theory

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Provisions, Contingent Liabilities and Contingent Assets

Income Taxes

Financial Instruments

Share-Based Payments

Translation of the Financial Statements of Foreign Entities

Employee Benefits

Inventories

Property, Plant and Equipment

Leases

Understanding Australian Accounting Standards

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Business Combinations

Consolidation: Principles and Accounting Requirements

Consolidation: Intragroup Transactions

Consolidation: Non Controlling Interest

Joint Arrangements

Filters