Question 1

The key principle relating to the disclosure of information about business combinations is to disclose information that:

Accepted Answer

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

Question 2

If the end of a subsidiary's reporting period does not coincide with the end of the parent entity's reporting period, adjustments must be made for the effects of significant events that occur between these dates as long as the difference between the ends reporting periods differs by no more than:

Accepted Answer

A)  one month 
B)  three months 
C)  four months 
D)  six months 
A)  one month 
B)  three months 
C)  four months 
D)  six months B

Question 3

When a parent entity has previously held an investment in a subsidiary prior to gaining control the effect on the consolidation process is as follows:

Accepted Answer

A)  there is no impact 
B)  the change in the fair value of the previously held interest is recognised in profit or loss 
C)  the change in the fair value of the previously held interest is recognised in retained earnings 
D)  the change in the fair value of the previously held interest is recognised in other comprehensive income 
A)  there is no impact 
B)  the change in the fair value of the previously held interest is recognised in profit or loss 
C)  the change in the fair value of the previously held interest is recognised in retained earnings 
D)  the change in the fair value of the previously held interest is recognised in other comprehensive income B

Question 4

A typical pre-acquisition consolidation worksheet entry to eliminate a parent entity's investment in a subsidiary would include the following entry:

Accepted Answer

A)  DR Share capital of parent $X; 
B)  CR Share capital of subsidiary $X; 
C)  CR Shares subsidiary $X; 
D)  DR Shares of subsidiary $X. 
A)  DR Share capital of parent $X; 
B)  CR Share capital of subsidiary $X; 
C)  CR Shares subsidiary $X; 
D)  DR Shares of subsidiary $X.

Question 5

Consolidated financial statements are prepared using the following presentation method:

Accepted Answer

A)  one-line; 
B)  line-by-line; 
C)  gross; 
D)  liquidation. 
A)  one-line; 
B)  line-by-line; 
C)  gross; 
D)  liquidation.

Question 6

On 1 July 20X6 Possum acquired a 100% interest in Echidna. At that time Echidna had goodwill of $5000 recorded in its statement of financial position as a result of a previous business combination. The total goodwill arising on Possum's acquisition of Echidna was $12 000. The goodwill recognised on consolidation in the business combination valuation entry as a result of Possum's acquisition of Echidna is:

Accepted Answer

A)  nil 
B)  $5 000 
C)  $7 000 
D)  $12 000 
A)  nil 
B)  $5 000 
C)  $7 000 
D)  $12 000

Question 7

Which of the following items cannot be revalued in the books of the subsidiary?

Accepted Answer

A)  inventory 
B)  land 
C)  plant and equipment 
D)  goodwill 
A)  inventory 
B)  land 
C)  plant and equipment 
D)  goodwill

Question 8

At acquisition date a wholly owned subsidiary had the following equity items: ? Retained earnings $14 000
? Share capital $30 000
? General reserve $6000
In the year following the acquisition the subsidiary transferred $10 000 from pre-acquisition retained earnings to general reserve. At the reporting date following the reserve transfer, the following consolidation adjustment is needed:

Accepted Answer

A) $\begin{array} { l c c c } 
\text { DR } &\text { Transfer to general reserve }& \$ 10,000  \
\mathrm { CR }& \text { General reserve }& \$ 10,000
\end{array}$ 
B)  $\begin{array} { l l l l } 
\text { DR } & \text { General reserve } & \$ 10000 \
\text { CR } & \text { Shares in subsidiary } & \$ 10000
\end{array}$ 
C)  $\begin{array}{lrr}
\text { DR } &  \text { Shares in subsidiary }&\$10,000 \
 \text { CR } & \text { Retained earnings }&\$10,000
\end{array}$ 
D) $\begin{array} { l l l l l } 
\text { DR }  & \text { General reserve } & \$ 10,000 & \
\text { CR } & \text { Transfer to general reserve } & \$ 10,000
\end{array}$ 
A) $\begin{array} { l c c c } 
\text { DR } &\text { Transfer to general reserve }& \$ 10,000  \
\mathrm { CR }& \text { General reserve }& \$ 10,000
\end{array}$ 
B)  $\begin{array} { l l l l } 
\text { DR } & \text { General reserve } & \$ 10000 \
\text { CR } & \text { Shares in subsidiary } & \$ 10000
\end{array}$ 
C)  $\begin{array}{lrr}
\text { DR } &  \text { Shares in subsidiary }&\$10,000 \
 \text { CR } & \text { Retained earnings }&\$10,000
\end{array}$ 
D) $\begin{array} { l l l l l } 
\text { DR }  & \text { General reserve } & \$ 10,000 & \
\text { CR } & \text { Transfer to general reserve } & \$ 10,000
\end{array}$

Question 9

One year after acquisition date, the goodwill acquired was regarded as having become impaired by $20 000. The appropriate consolidation adjustment in relation to the impairment will include the following line:

Accepted Answer

A)  DR Goodwill $20 000 
B)  DR Share capital $20 000 
C)  CR Business combination valuation reserve $20 000 
D)  CR Accumulated impairment losses $20 000. 
A)  DR Goodwill $20 000 
B)  DR Share capital $20 000 
C)  CR Business combination valuation reserve $20 000 
D)  CR Accumulated impairment losses $20 000.

Question 10

Which accounting standard established the disclosure requirements relating to a parent's interests in subsidiaries?

Accepted Answer

A)  IFRS 3 Business Combinations 
B)  IFRS 10 Consolidated Financial Statements 
C)  IFRS 12 Disclosure of Interests in Other Entities 
D)  IAS 27 Separate Financial Statements 
A)  IFRS 3 Business Combinations 
B)  IFRS 10 Consolidated Financial Statements 
C)  IFRS 12 Disclosure of Interests in Other Entities 
D)  IAS 27 Separate Financial Statements

Question 11

Parent Limited acquired 100% of a subsidiary on 1 July 20X7. At acquisition date the subsidiary had the following equity items: 
? Retained earnings $24 000
? Share capital $33 000
? Business combination revaluation reserve $10 000
In the year following the acquisition the subsidiary paid a bonus dividend of $14 000 out of pre-acquisition retained earnings. The following consolidation adjustment is needed in the consolidation worksheet for 30 June 20X8:

Accepted Answer

A)  $\text { DR } \quad \text { Share capital } \quad \$ 14000$
$\begin{array}{lll}
\text { CR } & \text { Bonus dividend paid } & \$ 14000
\end{array}$ 
B)  $\begin{array} { l r r r r } 
\text { DR } & & \text { Shares in subsidiary } & 14000 & \
& \text { CR } & \text { Share capital } & & \$ 14000
\end{array}$ 
C)  $\begin{array} { l c c c c } 
\text { DR } & & \text { Bonus dividend paid } & \$ 14000 & \
& \text { CR } & \text { Retained earnings } & & \$ 14000
\end{array}$ 
D)  $\begin{array} { l r r r } 
\text { DR } & \text { Retained earnings } & \$ 14000 & \
 \text { CR } & \text { Share capital } & \$ 14000
\end{array}$ 
A)  $\text { DR } \quad \text { Share capital } \quad \$ 14000$
$\begin{array}{lll}
\text { CR } & \text { Bonus dividend paid } & \$ 14000
\end{array}$ 
B)  $\begin{array} { l r r r r } 
\text { DR } & & \text { Shares in subsidiary } & 14000 & \
& \text { CR } & \text { Share capital } & & \$ 14000
\end{array}$ 
C)  $\begin{array} { l c c c c } 
\text { DR } & & \text { Bonus dividend paid } & \$ 14000 & \
& \text { CR } & \text { Retained earnings } & & \$ 14000
\end{array}$ 
D)  $\begin{array} { l r r r } 
\text { DR } & \text { Retained earnings } & \$ 14000 & \
 \text { CR } & \text { Share capital } & \$ 14000
\end{array}$

Question 12

Excelsior Limited acquired 100% of the shares in Arthur Limited on a cum.div. basis for $100 000. At acquisition date the subsidiary had a declared dividend of $5000. The pre-acquisition entry must include the following line:

Accepted Answer

A)  DR Shares in subsidiary $105 000; 
B)  DR Shares in subsidiary $100 000; 
C)  DR Shares in subsidiary $95 000; 
D)  DR Shares in subsidiary $5 000. 
A)  DR Shares in subsidiary $105 000; 
B)  DR Shares in subsidiary $100 000; 
C)  DR Shares in subsidiary $95 000; 
D)  DR Shares in subsidiary $5 000.

Question 13

The effect of the pre-acquisition entry is to eliminate the asset, 'Shares in subsidiary' and replace it with the:

Accepted Answer

A)  net assets of the subsidiary; 
B)  profit of the subsidiary; 
C)  equity accounts of the subsidiary; 
D)  cash and cash equivalents held by the subsidiary. 
A)  net assets of the subsidiary; 
B)  profit of the subsidiary; 
C)  equity accounts of the subsidiary; 
D)  cash and cash equivalents held by the subsidiary.

Question 14

A Limited acquired B Limited for $110 000. At acquisition date the fair value of the B Limited's Land asset was $40 000 and the book value was $30 000. 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 land?

Accepted Answer

A)  DR Deferred tax liability $3 000 
B)  CR Deferred tax liability $3 000 
C)  DR Deferred tax asset $3 000 
D)  CR Deferred tax liability $3 000. 
A)  DR Deferred tax liability $3 000 
B)  CR Deferred tax liability $3 000 
C)  DR Deferred tax asset $3 000 
D)  CR Deferred tax liability $3 000.

Question 15

Nelson Limited has two subsidiary entities, Poggi Limited and Holly Limited. Nelson Limited owns 100% of the shares in both entities. Details of issued share capital are: 
$\bullet$Nelson Limited $100 000
$\bullet$Poggi Limited $30 000
$\bullet$Holly Limited $15 000
The worksheet adjustment entry made in order to determine the amount of consolidated share capital is:

Accepted Answer

A)  $\text { DR \quad Share capital } \quad\quad \$ 145,000$
$\text { CR } \quad \text { Shares in subsidiaries } \quad \$ 145,000$ 
B)  $\begin{array} { l c c c } 
\text { DR } & \text { Share capital } & \$ 100,000 & \
\text { CR } & \text { Shares in subsidiaries } & & \$ 100,000
\end{array}$ 
C)  $\begin{array}{lll}\text { DR }&\text { Share capital }&\$45,000\
\text { CR } & \text { Shares in Poggi Limited } & \$ 30000 \
\text { CR } & \text { Shares in Holly Limited } & \$ 15000
\end{array}$ 
D)  $\begin{array}{llr}\text { DR } & \text {Share capital }&145,000\
\text { CR } & \text { Shares in Nelson Limited } & \$ 100,000 \
\text { CR } & \text { Shares in Poggi Limited } & \$ 30,000 \
\text { CR } & \text { Shares in Holly Limited } & \$ 15,000
\end{array}$ 
A)  $\text { DR \quad Share capital } \quad\quad \$ 145,000$
$\text { CR } \quad \text { Shares in subsidiaries } \quad \$ 145,000$ 
B)  $\begin{array} { l c c c } 
\text { DR } & \text { Share capital } & \$ 100,000 & \
\text { CR } & \text { Shares in subsidiaries } & & \$ 100,000
\end{array}$ 
C)  $\begin{array}{lll}\text { DR }&\text { Share capital }&\$45,000\
\text { CR } & \text { Shares in Poggi Limited } & \$ 30000 \
\text { CR } & \text { Shares in Holly Limited } & \$ 15000
\end{array}$ 
D)  $\begin{array}{llr}\text { DR } & \text {Share capital }&145,000\
\text { CR } & \text { Shares in Nelson Limited } & \$ 100,000 \
\text { CR } & \text { Shares in Poggi Limited } & \$ 30,000 \
\text { CR } & \text { Shares in Holly Limited } & \$ 15,000
\end{array}$

Question 16

At the date of acquisition a subsidiary had recorded a dividend payable of $10 000. The consolidation adjustment needed at the date of acquisition in relation to this event is:

Accepted Answer

A)  $\begin{array}{lrrr}
\text { DR } &\text { Dividend payable }& \$ 10,000 \
 \text { CR } &\text { Dividend receivable }& \$ 10,000 \
\end{array}$ 
B)  $\begin{array} { l l l l } 
\text { DR } & \text { Dividend revenue }&\$ 10,000 \
\text { CR } &\text { Dividend declared }& \$ 10,000 & \
\end{array}$ 
C)  $\begin{array}{lll}
\text { DR } & \text { Shares in subsidiary } & \$ 10,000\
\mathrm{CR} & \text { Dividend receivable } & \$ 10,000
\end{array}$ 
D)  $\text { DR } \quad \text { Cash } \quad \$ 10,000$
$\text { CR } \quad \text { Shares in subsidiary } \quad \$ 10,000$ 
A)  $\begin{array}{lrrr}
\text { DR } &\text { Dividend payable }& \$ 10,000 \
 \text { CR } &\text { Dividend receivable }& \$ 10,000 \
\end{array}$ 
B)  $\begin{array} { l l l l } 
\text { DR } & \text { Dividend revenue }&\$ 10,000 \
\text { CR } &\text { Dividend declared }& \$ 10,000 & \
\end{array}$ 
C)  $\begin{array}{lll}
\text { DR } & \text { Shares in subsidiary } & \$ 10,000\
\mathrm{CR} & \text { Dividend receivable } & \$ 10,000
\end{array}$ 
D)  $\text { DR } \quad \text { Cash } \quad \$ 10,000$
$\text { CR } \quad \text { Shares in subsidiary } \quad \$ 10,000$

Question 17

Where a parent entity acquires an investment in a subsidiary for less than the fair value of the identifiable net assets and contingent liabilities acquired, it is necessary to recognise the item in the consolidation worksheet as a gain in bargain purchase and then to:

Accepted Answer

A)  transfer it to a business combination valuation reserve account 
B)  goodwill; 
C)  investment in the shares of the subsidiary; 
D)  profit or loss. 
A)  transfer it to a business combination valuation reserve account 
B)  goodwill; 
C)  investment in the shares of the subsidiary; 
D)  profit or loss.

Question 18

In a business combination the revaluation of non-current assets in the records of the subsidiary means that the subsidiary has effectively adopted the:

Accepted Answer

A)  parent-entity model of consolidation 
B)  proprietary model of accounting 
C)  cost model of accounting 
D)  revaluation model of accounting. 
A)  parent-entity model of consolidation 
B)  proprietary model of accounting 
C)  cost model of accounting 
D)  revaluation model of accounting.

Question 19

On 1 July 20X6, P Limited acquired all the issued shares of S Limited for $50 000 when the equity of S Limited consisted of:
$\bullet$Share Capital $35 000
$\bullet$Retained Earnings $15 000
The pre-acquisition entry at 1 July 20X6 is:

Accepted Answer

A) $\begin{array}{lll}
\text { Shares in S Limited } & \mathrm{Dr} & 50,000 \
\text { Opening Retained earnings } & \mathrm{Cr} &15,000 \
\text { Share capital } & \mathrm{Cr} &35,000
\end{array}$ 
B) $\begin{array}{lll}
\text { Opening Retained earnings } & \mathrm{Dr} & 15,000 \
\text { Share capital } & \mathrm{Dr} & 35,000 \
\text { Shares in S Limited } & \mathrm{Cr} &50,000
\end{array}$ 
C) $\begin{array}{lll}
\text { Opening Retained earnings } & \mathrm{Dr} & 35,000 \
\text { Share capital } & \mathrm{Dr} & 15,000 \
\text { Shares in S Limited } & \mathrm{Cr} &50,000
\end{array}$ 
D) $\begin{array}{lll}
\text { Goodwill } & \mathrm{Dr} & 15,000 \
\text { Share capital } & \mathrm{Dr} & 35,000 \
\text { Shares in S Limited } & \mathrm{Cr} &50,000
\end{array}$ 
A) $\begin{array}{lll}
\text { Shares in S Limited } & \mathrm{Dr} & 50,000 \
\text { Opening Retained earnings } & \mathrm{Cr} &15,000 \
\text { Share capital } & \mathrm{Cr} &35,000
\end{array}$ 
B) $\begin{array}{lll}
\text { Opening Retained earnings } & \mathrm{Dr} & 15,000 \
\text { Share capital } & \mathrm{Dr} & 35,000 \
\text { Shares in S Limited } & \mathrm{Cr} &50,000
\end{array}$ 
C) $\begin{array}{lll}
\text { Opening Retained earnings } & \mathrm{Dr} & 35,000 \
\text { Share capital } & \mathrm{Dr} & 15,000 \
\text { Shares in S Limited } & \mathrm{Cr} &50,000
\end{array}$ 
D) $\begin{array}{lll}
\text { Goodwill } & \mathrm{Dr} & 15,000 \
\text { Share capital } & \mathrm{Dr} & 35,000 \
\text { Shares in S Limited } & \mathrm{Cr} &50,000
\end{array}$

Question 20

Leader Limited acquired 100% of the share capital of Follower Limited. Follower had issued share capital of $100 000. The book values of Follower Limited's assets were: Land $50 000, Equipment $60 000. The fair values of these assets were: Land $90 000, Equipment $70 000. The tax rate is 30%. The fair value of the identifiable net assets is:

Accepted Answer

A)  $135 000; 
B)  $110 000; 
C)  $160 000; 
D)  $100 000. 
A)  $135 000; 
B)  $110 000; 
C)  $160 000; 
D)  $100 000.

Exam 17: Consolidation: Wholly Owned Subsidiaries

The key principle relating to the disclosure of information about business combinations is to disclose information that:

If the end of a subsidiary's reporting period does not coincide with the end of the parent entity's reporting period, adjustments must be made for the effects of significant events that occur between these dates as long as the difference between the ends reporting periods differs by no more than:

When a parent entity has previously held an investment in a subsidiary prior to gaining control the effect on the consolidation process is as follows:

A typical pre-acquisition consolidation worksheet entry to eliminate a parent entity's investment in a subsidiary would include the following entry:

Consolidated financial statements are prepared using the following presentation method:

Which of the following items cannot be revalued in the books of the subsidiary?

One year after acquisition date, the goodwill acquired was regarded as having become impaired by $20 000. The appropriate consolidation adjustment in relation to the impairment will include the following line:

Which accounting standard established the disclosure requirements relating to a parent's interests in subsidiaries?

Excelsior Limited acquired 100% of the shares in Arthur Limited on a cum.div. basis for $100 000. At acquisition date the subsidiary had a declared dividend of $5000. The pre-acquisition entry must include the following line:

The effect of the pre-acquisition entry is to eliminate the asset, 'Shares in subsidiary' and replace it with the:

At the date of acquisition a subsidiary had recorded a dividend payable of $10 000. The consolidation adjustment needed at the date of acquisition in relation to this event is:

Where a parent entity acquires an investment in a subsidiary for less than the fair value of the identifiable net assets and contingent liabilities acquired, it is necessary to recognise the item in the consolidation worksheet as a gain in bargain purchase and then to:

In a business combination the revaluation of non-current assets in the records of the subsidiary means that the subsidiary has effectively adopted the:

On 1 July 20X6, P Limited acquired all the issued shares of S Limited for $50 000 when the equity of S Limited consisted of: ∙\bullet∙ Share Capital $35 000 ∙\bullet∙ Retained Earnings $15 000 The pre-acquisition entry at 1 July 20X6 is:

The Iasb and Its Conceptual Framework

Owners Equity: Share Capital and Reserves

Fair Value Measurement

Revenue From Contracts With Customers

Provisions, Contingent Liabilities and Contingent Assets

Financial Instruments

Share-Based Payment

Inventories

Employee Benefits

Leases

Impairment of Assets

Financial Statement Presentation

Statement of Cash Flows

Operating Segments

Other Key Notes Disclosures

Consolidation: Controlled Entities

Consolidation: Intragroup Transactions

Translation of the Financial Statements of Foreign Entities

Agriculture

Associates and Joint Ventures

Joint Arrangements

Revenue From Contracts With Customers

Financial Instruments

Financial Instruments

Share-Based Payment

Exploration for and Evaluation of Mineral Resources

Filters

On 1 July 20X6, P Limited acquired all the issued shares of S Limited for $50 000 when the equity of S Limited consisted of: $\bullet$ Share Capital $35 000 $\bullet$ Retained Earnings $15 000 The pre-acquisition entry at 1 July 20X6 is: