Question 1

Which of the following statements are incorrect with regards to pre-acquisition entries prepared after acquisition date?

Accepted Answer

A)  are adjusted for transfers between post-acquisition equity accounts. 
B)  are adjusted for the changes in the investment account recognised by the parent in the subsidiary. 
C)  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. 
D)  reverse the transfers between pre-acquisition equity accounts and changes in the investment account that happen in the current period. 
A)  are adjusted for transfers between post-acquisition equity accounts. 
B)  are adjusted for the changes in the investment account recognised by the parent in the subsidiary. 
C)  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. 
D)  reverse the transfers between pre-acquisition equity accounts and changes in the investment account that happen in the current period.

Question 2

If a revaluation of the subsidiary's assets is performed on consolidation, the subsidiary's assets are carried into the consolidated statement of financial position at:

Accepted Answer

A)  net present value. 
B)  current replacement cost. 
C)  historical cost. 
D)  fair value. 
A)  net present value. 
B)  current replacement cost. 
C)  historical cost. 
D)  fair value.

Question 3

Which of the following statements is incorrect?

Accepted Answer

A)  Where consolidated financial statements are prepared over a number of years, consolidation entries need to be made every time a consolidation worksheet is prepared. 
B)  Consolidation adjusting entries affect the ledger accounts of the parent and subsidiaries. 
C)  A consolidation worksheet is used to help the process of adding together the financial statements of the parent and its subsidiaries. 
D)  There are no consolidated ledger accounts. 
A)  Where consolidated financial statements are prepared over a number of years, consolidation entries need to be made every time a consolidation worksheet is prepared. 
B)  Consolidation adjusting entries affect the ledger accounts of the parent and subsidiaries. 
C)  A consolidation worksheet is used to help the process of adding together the financial statements of the parent and its subsidiaries. 
D)  There are no consolidated ledger accounts.

Question 4

Susan Limited has two subsidiary entities, Rachel Limited and Rebecca Limited. Susan Limited owns 100% of the shares in both entities. Details of the cash accounts of each company are: Susan Limited $200 000, Rachel Limited $60 000, Rebecca Limited $30 000. The balance of the consolidated cash account of the Susan Limited group is:

Accepted Answer

A)  $290 000. 
B)  $200 000. 
C)  $260 000. 
D)  $230 000. 
A)  $290 000. 
B)  $200 000. 
C)  $260 000. 
D)  $230 000.

Question 5

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

Question 6

On 1 July 2014, Peter Limited acquired all the issued shares of Kerri Limited for $100 000 when the equity of Kerri Limited consisted of:
 
The pre-acquisition entry at 1 July 2014 is:

Accepted Answer

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

Question 7

Which of the following events can cause a change in the pre-acquisition entry subsequent to acquisition date?

Accepted Answer

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

Question 8

On 1 January 2014, Cowboys Ltd acquired all the issued shares in Tate Ltd. At that date, the plant of Tate Ltd had a fair value of $20 000 more than its carrying amount and an estimated useful life of 5 years. Tate Ltd depreciates the plant on a straight-line basis. The plant was sold during the year ended on 30 June 2015. The business combination valuation consolidation adjustment against plant in relation to the transaction as at 30 June 2015 will be:

Accepted Answer

A)  a debit of $20 000. 
B)  a credit of $20 000. 
C)  a debit of $4 000. 
D)  there is no adjustment entry recorded against the plant account. 
A)  a debit of $20 000. 
B)  a credit of $20 000. 
C)  a debit of $4 000. 
D)  there is no adjustment entry recorded against the plant account.

Question 9

On 1 July 2014 Good Ltd acquired a 100% interest in Life Ltd. At that time Life Ltd had goodwill of $10 000 recorded in its statement of financial position as a result of a previous business combination. The total goodwill arising on Good's acquisition of Life was $24 000. The goodwill to be recognised on consolidation as a result of Good's acquisition of Life is:

Accepted Answer

A)  nil. 
B)  $10 000. 
C)  $14 000. 
D)  $24 000. 
A)  nil. 
B)  $10 000. 
C)  $14 000. 
D)  $24 000.

Question 10

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

Accepted Answer

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

Question 11

Which of the following statements is incorrect with regards to the acquisition analysis?

Accepted Answer

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

Question 12

The business combination valuation entries are used to recognise:

Accepted Answer

A)  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. 
B)  the fair value of the assets not recorded in the subsidiary's accounts at acquisition date. 
C)  the fair value of the liabilities not recorded in the subsidiary's accounts at acquisition date. 
D)  all of the options are correct. 
A)  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. 
B)  the fair value of the assets not recorded in the subsidiary's accounts at acquisition date. 
C)  the fair value of the liabilities not recorded in the subsidiary's accounts at acquisition date. 
D)  all of the options are correct.

Question 13

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)  nine months. 
B)  three months. 
C)  one month. 
D)  six months. 
A)  nine months. 
B)  three months. 
C)  one month. 
D)  six months.

Question 14

During the consolidation process, it may be necessary to make the following adjustments to the individual statements:

Accepted Answer

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

Question 15

Which of the following assets cannot be revalued above their cost in the accounting records of the subsidiary?

Accepted Answer

A)  Inventories. 
B)  Plant and equipment. 
C)  Goodwill. 
D)  Inventories and goodwill. 
A)  Inventories. 
B)  Plant and equipment. 
C)  Goodwill. 
D)  Inventories and goodwill.

Question 16

Before undertaking the consolidation process, it may be necessary to make the following adjustments in relation to the individual statements if the parent and the subsidiary do not use the same accounting policies for like transactions in similar circumstances:

Accepted Answer

A)  the subsidiary will prepare its own financial statements using the same accounting policies as the parent. 
B)  the parent will prepare its own financial statements using the same accounting policies as the subsidiary. 
C)  the subsidiary will prepare its own financial statements using accounting policies that are negotiated with the parent. 
D)  all of the options are incorrect. 
A)  the subsidiary will prepare its own financial statements using the same accounting policies as the parent. 
B)  the parent will prepare its own financial statements using the same accounting policies as the subsidiary. 
C)  the subsidiary will prepare its own financial statements using accounting policies that are negotiated with the parent. 
D)  all of the options are incorrect.

Question 17

The pre-acquisition entry is necessary to:

Accepted Answer

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

Question 18

Water Limited acquired Boy Limited for a purchase consideration of $110 000. At acquisition date the fair value of the Boy Limited's land asset was $80 000 and the carrying amount was $60 000. 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 at acquisition date?

Accepted Answer

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

Question 19

Which of the following statements is incorrect?

Accepted Answer

A)  The business combination valuation reserve is an account recorded in the subsidiary's records. 
B)  The acquisition analysis may include the recognition of assets and liabilities not recognised in the subsidiary's records. 
C)  The acquisition analysis will determine whether any goodwill or gain on bargain purchase has arisen as a part of the business combination. 
D)  An acquisition analysis is prepared at acquisition date to identify the identifiable assets and liabilities of the subsidiary at fair value. 
A)  The business combination valuation reserve is an account recorded in the subsidiary's records. 
B)  The acquisition analysis may include the recognition of assets and liabilities not recognised in the subsidiary's records. 
C)  The acquisition analysis will determine whether any goodwill or gain on bargain purchase has arisen as a part of the business combination. 
D)  An acquisition analysis is prepared at acquisition date to identify the identifiable assets and liabilities of the subsidiary at fair value.

Question 20

In the case of a wholly owned subsidiary, if the fair value of the consideration transferred plus the fair value of the previously held interest is greater than the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary:

Accepted Answer

A)  a gain on bargain purchase results. 
B)  goodwill has been purchased and must be recognised on consolidation. 
C)  the difference is treated as a special equity reserve in the acquirer's accounting records. 
D)  the difference is immediately charged to profit or loss in the period in which the business combination occurred. 
A)  a gain on bargain purchase results. 
B)  goodwill has been purchased and must be recognised on consolidation. 
C)  the difference is treated as a special equity reserve in the acquirer's accounting records. 
D)  the difference is immediately charged to profit or loss in the period in which the business combination occurred.

Exam 27: Consolidation: Wholly Owned Entities

Which of the following statements are incorrect with regards to pre-acquisition entries prepared after acquisition date?

If a revaluation of the subsidiary's assets is performed on consolidation, the subsidiary's assets are carried into the consolidated statement of financial position at:

Which of the following statements is incorrect?

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:

On 1 July 2014, Peter Limited acquired all the issued shares of Kerri Limited for $100 000 when the equity of Kerri Limited consisted of: The pre-acquisition entry at 1 July 2014 is:

Which of the following events can cause a change in the pre-acquisition entry subsequent to acquisition date?

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

Which of the following statements is incorrect with regards to the acquisition analysis?

The business combination valuation entries are used to recognise:

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:

During the consolidation process, it may be necessary to make the following adjustments to the individual statements:

Which of the following assets cannot be revalued above their cost in the accounting records of the subsidiary?

Before undertaking the consolidation process, it may be necessary to make the following adjustments in relation to the individual statements if the parent and the subsidiary do not use the same accounting policies for like transactions in similar circumstances:

The pre-acquisition entry is necessary to:

Which of the following statements is incorrect?

In the case of a wholly owned subsidiary, if the fair value of the consideration transferred plus the fair value of the previously held interest is greater than the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary:

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 Reporting

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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