Exam 14: Associates and Joint Ventures

For the purposes of equity accounting, significant influence is defined as the power of an investor to:

The investor recognises its shares of an associate's losses only to the point where the carrying amount of the investment reaches zero.

The accounting method applied to investments in associates, known as the equity method, is also known as the:

Kanga Limited acquired a 35% investment in Roo Limited for $20 000. Kanga Limited also owns two subsidiaries and prepares consolidated financial statements. Roo Limited declared and paid a dividend of $5000 during the current financial year. The appropriate consolidation adjustment to record this transaction will include which of the following?

Equity adjustments must be made for transactions between the associate and the investor that give rise to unrealised profits or losses.

Significant influence automatically arises where the investor holds 20% or more of the shares in the investee.

An associate is defined in AASB 128/IAS 28 Investments in Associates and Joint Ventures as an entity over which the investor has control.

Where an investor sells inventories to an associate in a prior year and the inventories are sold by the associate during the current year, the investment in associate account is:

Which of the following is not one of the three levels of control that one entity can exercise over another?

A joint arrangement is defined in AASB 128/IAS 28 Investments in Associates and Joint Ventures as an arrangement between two or more entities whereby the entities have joint control of another entity.

On 1 July 2012 Girls Ltd acquired 25% of the shares of Spice Ltd for $200 000. At that date the equity of Spice Ltd was $800 000, with all identifiable assets and liabilities being measured at fair value. Profits/(losses) made since the date of acquisition are as follows. $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Year ended } \\30 \text { June }\end{array} & \text { Profit/(Loss) } \\&\$\\\hline 2013 & 40000 \\\hline 2014 & ( 400000 ) \\\hline 2015 & ( 500000 ) \\\hline 2016 & 32000 \\\hline 2017 & 40000 \\\hline\end{array}$ There have been no dividends paid or movements in reserves since the date of acquisition. At 30 June 2014 the equity accounted balance of the investment in Spice was:

Cozza Limited acquired a 40% investment in Hodgo Limited for $1 000 000. Hodgo declared and paid a dividend of $20 000 during the current year. Cozza Limited does not prepare consolidated financial statements. Which of the following is the appropriate entry for Cozza to record this dividend?

Only upstream transactions are adjusted for when making notional adjustment to post-acquisition profits of an associate prior to calculating the investor's share.

Which of the following statements is incorrect?

When disclosing information about investments in associates, AASB 128/IAS 28 Investments in Associates and Joint Ventures, requires separate disclosure of which of the following? I Shares in associates, in the statement of financial position. II Share of profit or loss of associates, in the statement of profit or loss and other comprehensive income. III Share of any discontinuing operations, in the statement of changes in equity. IV Shares of changes recognised directly in the associate's equity, in the statement of changes in equity.

Where which of the following conditions exist, is the equity method not applied to associates? I. The entity is a wholly owned subsidiary or a partly owned subsidiary and its owners do not object to the entity not applying the equity method. II) The entity's debt or equity securities are not traded in a public market. III) The entity has not filed financial statements with a regulatory organisation for the purpose of issuing any class of securities in a public market. IV) The ultimate parent of the entity publishes consolidated financial statements that comply with IFRS.

Goodwill acquired in an associate is:

Broncos Limited acquired a 30% interest in Bennett Limited for $54 000. Broncos holds other equity investments but does not prepare consolidated financial statements. Bennett Limited revalued its buildings upwards by $20 000 during the current financial period. The balance of the investment in associate account at the end of the current financial period is:

Where an entity prepares consolidated financial statements and has an investment in an associate, they have a choice of applying the equity method on consolidation or directly in their own books.

On 1 July 2016 Titans Ltd acquired a 25% share of Taylor Ltd. At that date, the following assets had carrying amounts different to their fair values in Taylor's books. Asset Carrying arnourt Fair value Inventories \ 24000 \ 30000 Machinery \ 48000 \ 60000 All inventories were sold to third parties by 30 June 2017. On 1 July 2016, the machinery had a remaining useful life of 3 years. The tax rate is 30%. The adjustment required to the investment in associate account at 30 June 2017 in relation to the above assets is: