Question 1

It is possible for more than one entity to exercise significant influence over an entity.

Accepted Answer

A) True 
 B)False

Question 2

Factor Limited acquired a 25% investment in Red Limited for $31 000. Red Limited declared and paid a dividend of $10 000. Factor Limited does not prepare consolidated financial statements. Which of the following is the appropriate entry for Factor Limited to record this dividend?

Accepted Answer

A)  DR Investment in associate $2500 CR Dividend revenue $2500 
B)  DR Cash $2500 CR Investment in associate $2500 
C)  DR Dividends received $2500 CR Cash $2500 
D)  DR Cash $2500 CR Dividend revenue $2500

Question 3

Where the carrying amount of an associate's depreciable assets is lower than their fair values at the date of acquisition, an adjustment is required to be made to restate the assets to their fair values.

Accepted Answer

A) True 
 B)False

Question 4

Where the investor prepares consolidated financial statements and a dividend is received from an associate, the entry in the investor's books on receipt of the dividend involves a credit adjustment against dividend revenue.

Accepted Answer

A) True 
 B)False

Question 5

Significant influence is defined as the power to participate in the financing or operating policy decisions of the investee.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  100% 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)  75% or more of the voting power of the investee.

Question 7

Where an investment in an associate is made in a number of separate acquisitions, the equity method is applied from the date that significant influence is obtained.

Accepted Answer

A) True 
 B)False

Question 8

Any excess of the investor's share of the net fair value of an associate's identifiable assets and liabilities over the cost of the investment is recognised as income in the determination of the investor's share of the associate's profit or loss in the period in which the investment is acquired.

Accepted Answer

A) True 
 B)False

Exam 14: Associates and Joint Ventures

It is possible for more than one entity to exercise significant influence over an entity.

Factor Limited acquired a 25% investment in Red Limited for $31 000. Red Limited declared and paid a dividend of $10 000. Factor Limited does not prepare consolidated financial statements. Which of the following is the appropriate entry for Factor Limited to record this dividend?

Where the carrying amount of an associate's depreciable assets is lower than their fair values at the date of acquisition, an adjustment is required to be made to restate the assets to their fair values.

Where the investor prepares consolidated financial statements and a dividend is received from an associate, the entry in the investor's books on receipt of the dividend involves a credit adjustment against dividend revenue.

Significant influence is defined as the power to participate in the financing or operating policy decisions of the investee.

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

Where an investment in an associate is made in a number of separate acquisitions, the equity method is applied from the date that significant influence is obtained.

Any excess of the investor's share of the net fair value of an associate's identifiable assets and liabilities over the cost of the investment is recognised as income in the determination of the investor's share of the associate's profit or loss in the period in which the investment is acquired.