Question 1

Under the single-date method, goodwill would be recognised.

Accepted Answer

A)  at the point in time when the parent entity ultimately gains control of the subsidiary. 
B)  at the time when each additional acquisition of shares is made. 
C)  as part of equity in the parent's books. 
D)  at the point in time when the subsidiary shareholders acknowledge that they will sell their shareholdings to the parent entity. 
E)  None of the given answers. 
A)  at the point in time when the parent entity ultimately gains control of the subsidiary. 
B)  at the time when each additional acquisition of shares is made. 
C)  as part of equity in the parent's books. 
D)  at the point in time when the subsidiary shareholders acknowledge that they will sell their shareholdings to the parent entity. 
E)  None of the given answers. A

Question 2

Window Ltd acquired a 70 per cent interest in Door Ltd on 1 July 2003 for a cash consideration of $1,399,000. At that date fair value of the net assets of Door Ltd were represented by:
 
On 1 July 2004 Window Ltd purchased a further 30 per cent of the issued capital of Door Ltd for cash consideration of $665,000. At this date the fair value of the net assets of Door Ltd were represented by:
 
Impairment of goodwill was assessed at $4,000; relating evenly across each of the last two years. During the period ended 30 June 2005, Door Ltd proposed a dividend of $120,000. The dividend has not been paid at the end of the period, but Window Ltd has a policy of accruing the dividends of subsidiaries when they are proposed. There were no other intragroup transactions. What are the consolidation entries to eliminate the investment in the subsidiary, account for goodwill and eliminate the dividends for the period ended 30 June 2005?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers. C

Question 3

Control over a subsidiary may be lost without a change in absolute or relative ownership levels. An example of this is loss of control to a court administrator as a result of bankruptcy.

Accepted Answer

A) True 
 B)False  True

Question 4

An immediate parent entity may purchase shares in its subsidiary in separate transactions with long periods of time between transactions. It is possible that one transaction may give rise to goodwill on consolidation and another to an excess. How would the excess on consolidation be calculated and treated in the consolidated accounts?

Accepted Answer

A)  The difference between the fair value of the total consideration paid in all transactions to date should be compared to the proportion of the fair value of the net assets of the subsidiary as at the last purchase date. An excess arises where the consideration is less than the share of the fair value of the net assets purchased. The excess should be eliminated pro-rata against the subsidiary's monetary items. Where the excess is greater than the amount of non-monetary items the balance should be eliminated against the non-monetary assets of the subsidiary. 
B)  The difference between the fair value of the consideration paid for the shares and the fair value of the proportion of net assets acquired in each transaction should be calculated separately. An excess arises where the consideration is less than the share of the fair value of the net assets purchased. The excess should be recognised as revenue. 
C)  The difference between the value of the total consideration paid in all transactions to date should be compared to the proportion of the book value of the net assets of the subsidiary as at the last purchase date. An excess arises where the consideration is less than the share of the fair value of the net assets purchased. The excess should be amortised over a period of not greater than 10 years. 
D)  The difference between the fair value of the consideration paid for the shares and the fair value of the proportion of net assets acquired in each transaction should be calculated. While the Standard does not permit goodwill to be recognised on a purchase of further shares after control has been achieved, an excess will be recognised if the consideration is less than the share of the fair value of the net assets purchased. The excess should be eliminated pro-rata against the subsidiary's monetary items. The excess should be amortised over a period of not greater than 10 years. 
E)  None of the given answers. 
A)  The difference between the fair value of the total consideration paid in all transactions to date should be compared to the proportion of the fair value of the net assets of the subsidiary as at the last purchase date. An excess arises where the consideration is less than the share of the fair value of the net assets purchased. The excess should be eliminated pro-rata against the subsidiary's monetary items. Where the excess is greater than the amount of non-monetary items the balance should be eliminated against the non-monetary assets of the subsidiary. 
B)  The difference between the fair value of the consideration paid for the shares and the fair value of the proportion of net assets acquired in each transaction should be calculated separately. An excess arises where the consideration is less than the share of the fair value of the net assets purchased. The excess should be recognised as revenue. 
C)  The difference between the value of the total consideration paid in all transactions to date should be compared to the proportion of the book value of the net assets of the subsidiary as at the last purchase date. An excess arises where the consideration is less than the share of the fair value of the net assets purchased. The excess should be amortised over a period of not greater than 10 years. 
D)  The difference between the fair value of the consideration paid for the shares and the fair value of the proportion of net assets acquired in each transaction should be calculated. While the Standard does not permit goodwill to be recognised on a purchase of further shares after control has been achieved, an excess will be recognised if the consideration is less than the share of the fair value of the net assets purchased. The excess should be eliminated pro-rata against the subsidiary's monetary items. The excess should be amortised over a period of not greater than 10 years. 
E)  None of the given answers.

Question 5

Spock Ltd acquired a 10 per cent holding in Kirk Ltd on 1 July 2011 for $350,000 cash, being the fair value of consideration transferred.
On 30 June 2012, Spock Ltd acquired a further 75 per cent of the contributed capital of Kirk Ltd for $3,300,000, which represents the fair value of consideration transferred. After the latest acquisition, Spock Ltd gained control of Kirk Ltd. The fair value of the net assets acquired and the liabilities assumed of Kirk Ltd at the acquisition date of 30 June 2012 was $3,500,000 and all assets were recorded at far value in the financial statements of Kirk Ltd.
Goodwill is also attributed to the non-controlling interest.
Based on the above information, which of the following accounting treatments is not in accordance with AASB 127?

Accepted Answer

A)  Goodwill on acquisition of Kirk Ltd to be eliminated on consolidation is $765,000. 
B)  Gain on acquisition of additional investment in Kirk Ltd to be recognised in 2012 is $90,000. 
C)  Non-controlling interest in Kirk Ltd on 30 June 2012 is $660,000. 
D)  Investment in Kirk Ltd to be eliminated on 30 June 2012 is $3,740,000. 
E)  None of the given answers. 
A)  Goodwill on acquisition of Kirk Ltd to be eliminated on consolidation is $765,000. 
B)  Gain on acquisition of additional investment in Kirk Ltd to be recognised in 2012 is $90,000. 
C)  Non-controlling interest in Kirk Ltd on 30 June 2012 is $660,000. 
D)  Investment in Kirk Ltd to be eliminated on 30 June 2012 is $3,740,000. 
E)  None of the given answers.

Question 6

Mickey Ltd acquired a 70 per cent interest in Mouse Ltd on 1 July 2003 for a cash consideration of $1,700,000. At that date the shareholders' funds of Mouse Ltd were:
 
The assets of Mouse Ltd were recorded at fair value at the time of the purchase.
On 1 July 2005 Mickey Ltd purchased a further 20 per cent of the issued capital of Mouse Ltd for a cash consideration of $530,000. At this date the fair value of the net assets of Mouse Ltd were represented by:
 
Impairment of goodwill was assessed at $9,000; of which $5,000 relates to the current period. There were no intragroup transactions. What are the consolidation entries to eliminate the investment in the subsidiary and account for goodwill for the period ended 30 June 2006?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 7

Fish Ltd acquired an 80 per cent interest in Chips Ltd on 1 July 2003 for a cash consideration of $838,000. At that date the fair value of the net assets of Chips Ltd was represented by:
 
On 30 June 2005 Fish Ltd sold all its shares in Chips Ltd for $950,000. At this date the fair value of the net assets of Chips Ltd was represented by:
 
The retained earnings of $490,000 includes operating profit after tax of $90,000 from the current period. Impairment of goodwill was assessed at $6,000. The investment has not been marked to market during the period that the shares were held. What is the amount of profit or loss on the sale of the shares recognised in the books of Fish Ltd during the period ended 30 June 2005?

Accepted Answer

A)  $14,000 
B)  $112,000 
C)  $20,000 
D)  $118,000 
E)  None of the given answers. 
A)  $14,000 
B)  $112,000 
C)  $20,000 
D)  $118,000 
E)  None of the given answers.

Question 8

Which of the following is not a reason for a parent to lose control of a subsidiary?

Accepted Answer

A)  When the parent makes a decision to sell its controlling interest in the subsidiary to another party. 
B)  Where the subsidiary issues additional shares to parties other than the parent. 
C)  The expiry of a contractual agreement that previously permitted the parent entity to control a subsidiary. 
D)  The subsidiary becoming subject to the control of a voluntary administrator due to bankruptcy. 
E)  None of the given answers. 
A)  When the parent makes a decision to sell its controlling interest in the subsidiary to another party. 
B)  Where the subsidiary issues additional shares to parties other than the parent. 
C)  The expiry of a contractual agreement that previously permitted the parent entity to control a subsidiary. 
D)  The subsidiary becoming subject to the control of a voluntary administrator due to bankruptcy. 
E)  None of the given answers.

Question 9

Fish Ltd acquired an 80 per cent interest in Chips Ltd on 1 July 2003 for a cash consideration of $838,000. At that date the fair value of the net assets of Chips Ltd was represented by:
 
On 30 June 2005 Fish Ltd sold all its shares in Chips Ltd for $950,000. At this date the fair value of the net assets of Chips Ltd was represented by:
 
The retained earnings of $490,000 includes operating profit after tax of $90,000 from the current period. Impairment of goodwill was assessed at $6,000, the impairment having been incurred evenly across the last two years. The investment has not been marked to market during the period that the shares were held. What is the elimination entry required for the consolidated accounts?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 10

The required method (according to AASB 3) of accounting for the acquisition of additional shares in a subsidiary is the single-date method.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is in accordance with AASB 127 "Consolidated Financial Statements" with respect to multiple acquisitions?

Accepted Answer

A)  Each individual investment in the subsidiary is accounted for separately and separate consolidation worksheet entries are made to eliminate each investment on consolidation. 
B)  Once control of the subsidiary is established, consolidation worksheet entries will eliminate the parent entity's respective share of the subsidiary's net identifiable assets as at each of the respective investment dates (at fair value). 
C)  The aggregate costs of the investments would be eliminated against the parent's share of capital and reserves at the date when control is ultimately established and only one amount of goodwill (or bargain gain on purchase) is calculated. 
D)  Because eliminations of each investment are made at the various investment dates, there is a need to calculate a separate amount of goodwill (bargain gain on purchase) for each investment date. 
E)  All of the given answers. 
A)  Each individual investment in the subsidiary is accounted for separately and separate consolidation worksheet entries are made to eliminate each investment on consolidation. 
B)  Once control of the subsidiary is established, consolidation worksheet entries will eliminate the parent entity's respective share of the subsidiary's net identifiable assets as at each of the respective investment dates (at fair value). 
C)  The aggregate costs of the investments would be eliminated against the parent's share of capital and reserves at the date when control is ultimately established and only one amount of goodwill (or bargain gain on purchase) is calculated. 
D)  Because eliminations of each investment are made at the various investment dates, there is a need to calculate a separate amount of goodwill (bargain gain on purchase) for each investment date. 
E)  All of the given answers.

Question 12

On 1 July 2002, City Ltd acquired 65 per cent of the issued capital of Town Ltd for $850,000 when the fair value of the net assets of Town Ltd was $1.2 million (share capital $1 million and retained earnings $0.2 million). On 30 June 2005 City Ltd purchased a further 25 per cent of Town's issued capital for $300,000. The net assets of Town Ltd were not stated at fair value in the accounts, which are summarised as follows:
 
The fair value of the plant and equipment is $1,090,000 at year end. Goodwill has been deemed not to have been impaired. There were no inter-company transactions during the period.
What are the consolidation journal entries required for the period ended 30 June 2005? (Ignore the tax effect of the revaluation)

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 13

Hill Ltd acquired an 80 per cent interest in Dale Ltd on 1 July 2004 for a cash consideration of $1,200,000. At that date the shareholders' funds of Dale Ltd were:
 
The assets of Dale Ltd were recorded at fair value at the time of the purchase.
On 1 July 2005 Hill Ltd purchased the remaining 20 per cent of the issued capital of Dale Ltd for a cash consideration of $336,000. At this date the fair value of the net assets of Dale Ltd were represented by:
 
Impairment of goodwill amounted to $35,600; $16,000 of which related to the year ended 30 June 2006. There were no inter-company transactions. What are the consolidation entries to eliminate the investment in the subsidiary and account for goodwill for the period ended 30 June 2006?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 14

When shares in a subsidiary are sold during a period, any income and expenses recorded in the consolidated accounts that relate to the subsidiary, are eliminated.

Accepted Answer

A) True 
 B)False

Question 15

The following consolidation adjusting journal entries appeared at the end of a period in which the parent sold all of its shareholding in a subsidiary. It received $1,200,000 for the shares.
 
At the time of the sale of the shares, the parent was holding the investment in subsidiary at what amount, in its own books?

Accepted Answer

A)  $450,000. 
B)  $700,000. 
C)  $950,000. 
D)  $1,450,000. 
E)  Cannot be determined from the information given. 
A)  $450,000. 
B)  $700,000. 
C)  $950,000. 
D)  $1,450,000. 
E)  Cannot be determined from the information given.

Question 16

Fan Ltd acquired a 60 per cent interest in Dance Ltd on 1 July 2002 for a cash consideration of $780,000. At that date the fair value of the net assets of Dance Ltd was represented by:
 
On 30 June 2005 Fan Ltd sold all its shares in Dance Ltd for $880,000. At this date the fair value of the net assets of Dance Ltd was represented by:
 
The retained earnings of $350,000 include operating profit after tax of $20,000 from the current period. Impairment of goodwill was assessed at $5,400, the impairment having been incurred evenly across the last three years. The investment has not been marked to market during the period that the shares were held. What is the elimination entry required for the consolidated accounts?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 17

The following consolidation adjusting journal entries appeared at the end of a period in which the parent sold all of its shareholding in a subsidiary. It received $1,200,000 for the shares.
 
The 'Cr Profit after tax' entry above represents:

Accepted Answer

A)  the profit made by the parent on the sale of the shares. 
B)  the profit made by the economic entity on the sale of the shares. 
C)  the amount accruing to the minority interest of the subsidiary. 
D)  the share of profits derived by the subsidiary for the entire current period. 
E)  the share of profits derived by the subsidiary in the current period, up to the time of divestment. 
A)  the profit made by the parent on the sale of the shares. 
B)  the profit made by the economic entity on the sale of the shares. 
C)  the amount accruing to the minority interest of the subsidiary. 
D)  the share of profits derived by the subsidiary for the entire current period. 
E)  the share of profits derived by the subsidiary in the current period, up to the time of divestment.

Question 18

When a parent sells its interest in a subsidiary, any profit or loss generated by the subsidiary:

Accepted Answer

A)  is transferred to the parent's investment in subsidiary account, and used to calculate the amount of profit or loss on the sale of the shares. 
B)  is immediately transferred to the equity section of the consolidated accounts, and is then available from distribution to shareholders. 
C)  is set off against any remaining balance in the goodwill on acquisition account, with any remaining amount distributed as dividends to the new owners. 
D)  is to be recorded in the consolidated financial statements for the period of the year that the parent had control of the subsidiary. 
E)  is to be recorded in the parent's financial statements for the period of the year that the parent had control of the subsidiary. 
A)  is transferred to the parent's investment in subsidiary account, and used to calculate the amount of profit or loss on the sale of the shares. 
B)  is immediately transferred to the equity section of the consolidated accounts, and is then available from distribution to shareholders. 
C)  is set off against any remaining balance in the goodwill on acquisition account, with any remaining amount distributed as dividends to the new owners. 
D)  is to be recorded in the consolidated financial statements for the period of the year that the parent had control of the subsidiary. 
E)  is to be recorded in the parent's financial statements for the period of the year that the parent had control of the subsidiary.

Question 19

On 1 July 2004, Horse Ltd acquired 80 per cent of the issued capital of Wagon Ltd for $785,000 when the fair value of the net assets of Wagon Ltd was $950,000 (share capital $800,000 and retained earnings $150,000). On 30 June 2007 Horse Ltd purchased the final 20 per cent of Wagon's issued capital for $380,000. The net assets of Wagon Ltd were not stated at fair value in the accounts, which are summarised as follows:
 
The fair value of the plant and equipment is $1,250,000 and the land was valued at $970,000 at year end. Impairment of goodwill was assessed at $7,500, the impairment having been incurred evenly across the last three years. There were no intragroup transactions during the period.
What are the consolidation journal entries required for the period ended 30 June 2007? (Ignore the tax effect of the revaluation)

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 20

Under the step-by-step method, the aggregate costs of the investments would be eliminated against the parent's share of capital and reserves at the date control of the subsidiary has been ultimately established and only one amount of goodwill (or bargain gain on purchase) is calculated.

Accepted Answer

A) True 
 B)False

Exam 32: Further Consolidation Issues Iv: Accounting for Changes in the Deg

Under the single-date method, goodwill would be recognised.

Control over a subsidiary may be lost without a change in absolute or relative ownership levels. An example of this is loss of control to a court administrator as a result of bankruptcy.

Which of the following is not a reason for a parent to lose control of a subsidiary?

The required method (according to AASB 3) of accounting for the acquisition of additional shares in a subsidiary is the single-date method.

Which of the following statements is in accordance with AASB 127 "Consolidated Financial Statements" with respect to multiple acquisitions?

When shares in a subsidiary are sold during a period, any income and expenses recorded in the consolidated accounts that relate to the subsidiary, are eliminated.

The following consolidation adjusting journal entries appeared at the end of a period in which the parent sold all of its shareholding in a subsidiary. It received $1,200,000 for the shares. The 'Cr Profit after tax' entry above represents:

When a parent sells its interest in a subsidiary, any profit or loss generated by the subsidiary:

Under the step-by-step method, the aggregate costs of the investments would be eliminated against the parent's share of capital and reserves at the date control of the subsidiary has been ultimately established and only one amount of goodwill (or bargain gain on purchase) is calculated.

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financ

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Revaluation and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Lease

Set-Off and Extinguishment of Debt

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in E

Accounting for Share-Based Payments

Accounting for Income Taxes

Cash-Flow Statements

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After Balance Sheet Date

Segment Reporting

Related-Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transact

Further Consolidation Issues Ii: Accounting for Minority Interests

Further Consolidation Issues Iii: Accounting for Indirect Ownershi

Accounting for Equity Investments

Accounting for Equity Investments

Accounting for Foreign Currency Transactions

Translation of the Accounts of Foreign Operations

Accounting for Corporate Social Responsibility

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