Question 1

Reasons for the preparation of consolidated financial statements include:

Accepted Answer

A)  Allowing comparison of the group with similar entities. 
B)  Supply of relevant information to investors in the parent entity. 
C)  Reporting of risks and benefits of the group as a single economic entity. 
D)  All of the options are correct. 
A)  Allowing comparison of the group with similar entities. 
B)  Supply of relevant information to investors in the parent entity. 
C)  Reporting of risks and benefits of the group as a single economic entity. 
D)  All of the options are correct.

Question 2

Financial statements that combine the separate sets of financial statements for all entities within an economic entity are known as:

Accepted Answer

A)  concise financial reports. 
B)  condensed financial reports. 
C)  combined financial statements. 
D)  consolidated financial statements. 
A)  concise financial reports. 
B)  condensed financial reports. 
C)  combined financial statements. 
D)  consolidated financial statements.

Question 3

With regards to the concept of control, power over an investee:

Accepted Answer

A)  means the ability to significantly influence the investee. 
B)  is related to relevant activities of the investee. 
C)  arises from potential rights. 
D)  means directing the investee. 
A)  means the ability to significantly influence the investee. 
B)  is related to relevant activities of the investee. 
C)  arises from potential rights. 
D)  means directing the investee.

Question 4

Variable returns from an investee include:

Accepted Answer

A)  fixed interest payments from a bond, as they expose the investor to the credit risk of the issuer of the bond, namely the investee 
B)  dividends from ordinary shares that will change based on the profit performance of the investee 
C)  fixed performance fees for management of the investee's assets, as they expose the investor to the performance risk of the investee. 
D)  all of the options are correct. 
A)  fixed interest payments from a bond, as they expose the investor to the credit risk of the issuer of the bond, namely the investee 
B)  dividends from ordinary shares that will change based on the profit performance of the investee 
C)  fixed performance fees for management of the investee's assets, as they expose the investor to the performance risk of the investee. 
D)  all of the options are correct.

Question 5

The key characteristic that determines when consolidated financial statements should be prepared is:

Accepted Answer

A)  control. 
B)  significant influence. 
C)  substance over form. 
D)  the existence of transactions between the entities. 
A)  control. 
B)  significant influence. 
C)  substance over form. 
D)  the existence of transactions between the entities.

Question 6

Examples of rights that determine the existence of power include:

Accepted Answer

A)  rights to direct the investee to enter into, or veto any changes to, transactions that affect the investee's returns. 
B)  rights to appoint, reassign or remove members of an investee's key management personnel 
C)  rights to appoint or remove another entity that participates in management decisions. 
D)  all of the options are correct. 
A)  rights to direct the investee to enter into, or veto any changes to, transactions that affect the investee's returns. 
B)  rights to appoint, reassign or remove members of an investee's key management personnel 
C)  rights to appoint or remove another entity that participates in management decisions. 
D)  all of the options are correct.

Question 7

The disclosure requirements in consolidated financial statements are included in which of the following accounting standards?

Accepted Answer

A)  AASB 127/IAS 127 Separate Financial Statements. 
B)  AASB 10/IFRS 10 Consolidated Financial Statements. 
C)  AASB 12/IFRS 12 Disclosure of Interests in Other Entities. 
D)  AASB 10/IFRS 10 Consolidated Financial Statements and AASB 12/IFRS 12 Disclosure of Interests in Other Entities. 
A)  AASB 127/IAS 127 Separate Financial Statements. 
B)  AASB 10/IFRS 10 Consolidated Financial Statements. 
C)  AASB 12/IFRS 12 Disclosure of Interests in Other Entities. 
D)  AASB 10/IFRS 10 Consolidated Financial Statements and AASB 12/IFRS 12 Disclosure of Interests in Other Entities.

Question 8

A group of entities comprised of Mark Limited (parent entity), Roger Limited (subsidiary entity) and Graham Limited (subsidiary entity) have the following inventories balances. $\begin{array}{ll}
\text { Mark Limited } & \$ 70,000 \
\text { Roger Limited } & \$ 32,000 \
\text { Graham Limited } & \$ 58,000
\end{array}$ Which of the following amounts is shown as the consolidated inventories balance in the consolidated financial statements?

Accepted Answer

A)  $70 000. 
B)  $20 000. 
C)  $160 000. 
D)  $90 000. 
A)  $70 000. 
B)  $20 000. 
C)  $160 000. 
D)  $90 000.

Question 9

Under paragraph B23 of AASB 10/IFRS 10 Consolidated Financial Statements, factors to consider in assessing whether the rights over an investee are substantive include:

Accepted Answer

A)  whether there are any barriers that prevent the investor from exercising them. 
B)  where more than one party is involved, whether there is a mechanism in place to enable those parties to practically exercise them. 
C)  whether the party or parties that hold the rights would benefit from the exercise of those rights. 
D)  all of the options are correct. 
A)  whether there are any barriers that prevent the investor from exercising them. 
B)  where more than one party is involved, whether there is a mechanism in place to enable those parties to practically exercise them. 
C)  whether the party or parties that hold the rights would benefit from the exercise of those rights. 
D)  all of the options are correct.

Question 10

When one entity controls another entity, the business combination results in which of the following types of relationship?

Accepted Answer

A)  Investor-investee. 
B)  Parent-subsidiary. 
C)  Investor-associate. 
D)  Parent-child. 
A)  Investor-investee. 
B)  Parent-subsidiary. 
C)  Investor-associate. 
D)  Parent-child.

Question 11

According to paragraph 10 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities, an entity shall disclose information that enables users of its consolidated financial statements to evaluate which of the following?
I. The consequences of losing control of a subsidiary.
II. The composition of the group.
III. The nature and extent of significant restrictions on its ability to access or use assets, and settle liabilities, of the group.
IV. The interest that non-controlling interests have in the group's activities and cash flows.

Accepted Answer

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

Question 12

When preparing consolidated financial statements, what is the name given to the combined entities that are made up of a parent entity and all its subsidiary entities?

Accepted Answer

A)  Consolidation 
B)  Combination 
C)  Associates 
D)  Group 
A)  Consolidation 
B)  Combination 
C)  Associates 
D)  Group

Question 13

At balance date, Company K has 40% of the voting rights in Company L. In addition, Company K holds potential voting rights in Company L amounting to 8% that are currently exercisable, and a further 12% of voting rights in Company L that can be exercised in two years' time. Which of the following statements is correct?

Accepted Answer

A)  Consolidated financial statements need not be prepared for Company K and L for the current year. 
B)  Consolidated financial statements must be prepared for Company K and L in the current year. 
C)  Consolidated financial statements must be prepared as Company K controls Company L at balance date. 
D)  Consolidated financial statements must be prepared as Company K has more than half of the voting rights in Company L at balance date. 
A)  Consolidated financial statements need not be prepared for Company K and L for the current year. 
B)  Consolidated financial statements must be prepared for Company K and L in the current year. 
C)  Consolidated financial statements must be prepared as Company K controls Company L at balance date. 
D)  Consolidated financial statements must be prepared as Company K has more than half of the voting rights in Company L at balance date.

Question 14

According to paragraph 9 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities, which of the following is an example of a situation where it is necessary to disclose significant judgements and assumptions in relation to subsidiaries?

Accepted Answer

A)  where an entity is an agent or a principal. 
B)  where an entity controls another entity but it holds less than half of the voting rights of the other entity. 
C)  where an entity does not control another entity but it holds more than half of the voting rights in the other entity. 
D)  all of the options are correct. 
A)  where an entity is an agent or a principal. 
B)  where an entity controls another entity but it holds less than half of the voting rights of the other entity. 
C)  where an entity does not control another entity but it holds more than half of the voting rights in the other entity. 
D)  all of the options are correct.

Question 15

AASB 10/IFRS 10 Consolidated Financial Statements defines a 'parent' and a 'subsidiary' as which of the following? $\begin{array}{|l|l|l|}
\hline & \text { Parent } & \text { Subsidiary } \
\hline \text { I. } & \text { An entity which is controlled by another entity. } & \text { An entity that controls one or more entities. } \
\hline \text { II. } & \text { An entity that controls one or more entities. } & \text { An entity which is controlled by another entity. } \
\hline \text { III. } & \begin{array}{l}
\text { An entity which owns more than } 20 \% \text { of the voting } \
\text { shares of another entity. }
\end{array} & \text { An entity which is owned partly by another entity. } \
\hline \text { IV. } & \text { An entity that has one or more subsidiaries. } & \text { An entity which is controlled by a parent entity. } \
\hline
\end{array}$

Accepted Answer

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

Question 16

The process of preparing the combined financial statements of a group of entities is known as:

Accepted Answer

A)  aggregation. 
B)  consolidation. 
C)  accumulation. 
D)  combination. 
A)  aggregation. 
B)  consolidation. 
C)  accumulation. 
D)  combination.

Question 17

Merlion Limited is an entity listed in Singapore. Merlion Limited holds a 100% investment in Kookaburra Pty Ltd, an Australian based company, who in turn holds a 90% interest in Kangaroo Pty Ltd. Kookaburra Pty Ltd and the Kookaburra group (comprising Kookaburra and Kangaroo) are both non-reporting entities. Which of the following statements is correct?

Accepted Answer

A)  Kookaburra Pty Ltd will be required to prepare consolidated financial statements as the ultimate Australian parent. 
B)  Kookaburra Pty Ltd will be required to prepare consolidated financial statements only if directed to do so by ASIC. 
C)  Kookaburra Pty Ltd will not be required to prepare consolidated financial statements as Merlion is a listed foreign entity. 
D)  Kookaburra Pty Ltd will not be required to prepare consolidated financial statements as they are a non-reporting entity. 
A)  Kookaburra Pty Ltd will be required to prepare consolidated financial statements as the ultimate Australian parent. 
B)  Kookaburra Pty Ltd will be required to prepare consolidated financial statements only if directed to do so by ASIC. 
C)  Kookaburra Pty Ltd will not be required to prepare consolidated financial statements as Merlion is a listed foreign entity. 
D)  Kookaburra Pty Ltd will not be required to prepare consolidated financial statements as they are a non-reporting entity.

Question 18

The process of preparing consolidated financial statements requires that:

Accepted Answer

A)  adjusting journal entries be recorded in the ledger accounts of the parent only. 
B)  adjusting journal entries be recorded in the ledger accounts of the subsidiaries only. 
C)  accruals of expenses and revenues be recorded directly into the retained earnings account of the parent entity. 
D)  no adjustments be made to the individual financial statements or ledger accounts of the entities in the group. 
A)  adjusting journal entries be recorded in the ledger accounts of the parent only. 
B)  adjusting journal entries be recorded in the ledger accounts of the subsidiaries only. 
C)  accruals of expenses and revenues be recorded directly into the retained earnings account of the parent entity. 
D)  no adjustments be made to the individual financial statements or ledger accounts of the entities in the group.

Question 19

In the context of control, the correct statement regarding rights is:

Accepted Answer

A)  They must be protective rights. 
B)  They must be substantive rights. 
C)  They must arise from a legal contract. 
D)  They must arise as a result of future events. 
A)  They must be protective rights. 
B)  They must be substantive rights. 
C)  They must arise from a legal contract. 
D)  They must arise as a result of future events.

Question 20

The process of preparing consolidated financial statements requires that:

Accepted Answer

A)  the individual financial statements of the parent and all its subsidiaries use uniform accounting practices for like transactions and other events in similar circumstances. 
B)  the subsidiaries must prepare, if practicable, financial information as of the same date and for the same period as the financial statements of the parent. 
C)  the individual financial statements of the parent and all its subsidiaries use uniform accounting policies for like transactions and other events in similar circumstances. 
D)  the individual financial statements of the parent and all its subsidiaries use uniform accounting policies for like transactions and other events in similar circumstances and that the subsidiaries must prepare, if practicable, financial information as of the same date and for the same period as the financial statements of the parent. 
A)  the individual financial statements of the parent and all its subsidiaries use uniform accounting practices for like transactions and other events in similar circumstances. 
B)  the subsidiaries must prepare, if practicable, financial information as of the same date and for the same period as the financial statements of the parent. 
C)  the individual financial statements of the parent and all its subsidiaries use uniform accounting policies for like transactions and other events in similar circumstances. 
D)  the individual financial statements of the parent and all its subsidiaries use uniform accounting policies for like transactions and other events in similar circumstances and that the subsidiaries must prepare, if practicable, financial information as of the same date and for the same period as the financial statements of the parent.

Exam 26: Consolidation: Controlled Entities

Reasons for the preparation of consolidated financial statements include:

Financial statements that combine the separate sets of financial statements for all entities within an economic entity are known as:

With regards to the concept of control, power over an investee:

Variable returns from an investee include:

The key characteristic that determines when consolidated financial statements should be prepared is:

Examples of rights that determine the existence of power include:

The disclosure requirements in consolidated financial statements are included in which of the following accounting standards?

Under paragraph B23 of AASB 10/IFRS 10 Consolidated Financial Statements, factors to consider in assessing whether the rights over an investee are substantive include:

When one entity controls another entity, the business combination results in which of the following types of relationship?

When preparing consolidated financial statements, what is the name given to the combined entities that are made up of a parent entity and all its subsidiary entities?

According to paragraph 9 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities, which of the following is an example of a situation where it is necessary to disclose significant judgements and assumptions in relation to subsidiaries?

The process of preparing the combined financial statements of a group of entities is known as:

The process of preparing consolidated financial statements requires that:

In the context of control, the correct statement regarding rights is:

The process of preparing consolidated financial statements requires that:

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 Recording

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Foreign Currency Financial Statements

Business Combinations

Consolidation: Wholly Owned 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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