Question 1

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

Accepted Answer

A)  equity of the subsidiary at the acquisition date. 
B)  equity of the parent at the acquisition date. 
C)  net assets of the subsidiary at the acquisition date. 
D)  net assets of the parent at the acquisition date.

Question 2

Hungry Limited acquired 100% of the share capital of Jane Limited for a purchase consideration of $320 000. At acquisition date, the net fair value of Jane Limited's assets, liabilities and contingent liabilities was $250 000 including goodwill with a carrying amount of $20 000. The company tax rate is 30%. The unrecorded amount of goodwill that must be recognised on the consolidation worksheet is:

Accepted Answer

A)  $50 000. 
B)  $70 000. 
C)  $90 000. 
D)  $15 000.

Question 3

At the end of any period after acquisition, the business combination entries prepared for the assets and liabilities that were not recorded at fair value at acquisition date and that are sold, fully depreciated or settled during the current period include:

Accepted Answer

A)  adjustments to the asset or liability account, recognising also the tax effects. 
B)  adjustments to the gains on sale or to expenses generated by depreciation, amortisation or impairment losses or settlement of liabilities, recognising also the tax effects. 
C)  adjustments to the asset and liability account and to the gains on sale or to expenses generated by depreciation, amortisation or impairment losses or settlement of liabilities, recognising also the tax effects. 
D)  no adjustments are required.

Question 4

Which of the following statements is correct?

Accepted Answer

A)  AASB 3 Business Combinations requires that any revaluations of a subsidiary's assets at acquisition date must be done in the consolidation worksheet. 
B)  The revaluation of non-current assets in the subsidiary's records means that the subsidiary has adopted the cost model of accounting for those assets. 
C)  Revaluations of assets such as goodwill and inventory are not permitted in the accounting records of the subsidiary. 
D)  Inventories can be revalued to an amount greater than its cost in the records of the subsidiary.

Question 5

Before undertaking the consolidation process, it may be necessary to make the following adjustments in relation to the individual statements if the end of the subsidiary's financial period does not coincide with the:

Accepted Answer

A)  the parent will prepare its own financial statements as at the end of the subsidiary's financial period. 
B)  the subsidiary will prepare its own financial statements as at the end of the parent's financial period. 
C)  the parent will prepare its own financial statements as at 30 June if the end of the parent's reporting period is not 30 June. 
D)  the subsidiary will prepare its own financial statements as at 30 June if the end of the parent's reporting period is not 30 June.

Question 6

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 still in the business at 30 June 2015. The business combination valuation entries in relation to the plant as at 30 June 2015 will include:
I. Adjustments to the plant account to recognise the fair value adjustment at acquisition date
II. Adjustments to the current depreciation expense
III. Adjustments to retained earnings (opening balance)
IV. Transfers from business combination valuation reserve to retained earnings

Accepted Answer

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

Question 7

When Wayne Ltd acquired 100% of the share capital of Carol Ltd, the carrying amount of Carol Ltd's machinery was $200 000. The fair value of the machinery on acquisition date was $160 000. The company tax rate was 30%. What is the amount of the business combination valuation reserve that will be recognised on consolidation?

Accepted Answer

A)  $40 000. 
B)  $12 000. 
C)  $28 000. 
D)  $160 000.

Question 8

Unity Limited acquired 100% of the share capital of Bellvista Limited for $300 000. Bellvista had total shareholder's equity of $200 000. The book values of Bellvista Limited's assets were: buildings $100 000, machinery $120 000. The fair values of these assets were: buildings $180 000, machinery $140 000. Also, Bellvista Limited has not previously recorded an internally generated trademark with a fair value of $30 000 and a contingent liability related to a guarantee with a fair value of $20 000. The tax rate is 30%. The acquisition analysis will determine:

Accepted Answer

A)  a gain on bargain purchase of $5 000. 
B)  a goodwill of $100 000. 
C)  a goodwill of $23 000. 
D)  a gain on bargain purchase of $10 000.

Exam 27: Consolidation: Wholly Owned Entities

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

At the end of any period after acquisition, the business combination entries prepared for the assets and liabilities that were not recorded at fair value at acquisition date and that are sold, fully depreciated or settled during the current period include:

Which of the following statements is correct?

Before undertaking the consolidation process, it may be necessary to make the following adjustments in relation to the individual statements if the end of the subsidiary's financial period does not coincide with the: