Question 1

Which consolidation method should be used in preparing consolidated financial statements in accordance with IFRS?

Accepted Answer

A)  Proportionate consolidation method. 
B)  Parent company method. 
C)  New entity method. 
D)  Either identifiable net assets or fair value enterprise method. 
A)  Proportionate consolidation method. 
B)  Parent company method. 
C)  New entity method. 
D)  Either identifiable net assets or fair value enterprise method. D

Question 2

Which of the following statements pertaining to the non-controlling interest (NCI) when using the identifiable net assets (INA) method is TRUE?

Accepted Answer

A)  The NCI value is based on the full fair value of the subsidiary including goodwill. 
B)  The NCI value is based on the book value of the net identifiable assets of the subsidiary excluding any value pertaining to goodwill. 
C)  The NCI value is based on the book value of the net identifiable assets of the subsidiary including goodwill. 
D)  The NCI value is based on the fair value of the net identifiable assets of the subsidiary but excludes any value pertaining to goodwill. 
A)  The NCI value is based on the full fair value of the subsidiary including goodwill. 
B)  The NCI value is based on the book value of the net identifiable assets of the subsidiary excluding any value pertaining to goodwill. 
C)  The NCI value is based on the book value of the net identifiable assets of the subsidiary including goodwill. 
D)  The NCI value is based on the fair value of the net identifiable assets of the subsidiary but excludes any value pertaining to goodwill. D

Question 3

When the parent forms a new subsidiary:

Accepted Answer

A)  there should be no acquisition differential. 
B)  gain or loss will usually arise. 
C)  push down accounting rules must be followed. 
D)  it should not be included in the company's consolidated financial statements as this would effectively be double-counting. 
A)  there should be no acquisition differential. 
B)  gain or loss will usually arise. 
C)  push down accounting rules must be followed. 
D)  it should not be included in the company's consolidated financial statements as this would effectively be double-counting. A

Question 4

Keen Inc. and Lax Inc. had the following balance sheets on October 31, 2019:
 $\begin{array}{|l|r|r|r|}
\hline & \text { Keen Inc } & \text { Lax Inc } & \text { Lax Inc } \
\hline & \text { (carrying value) } & \text { (carrying value) } & \text { (fair value) } \
\hline \text { Cash } & \$ 300,000 & \$ 80,000 & \$ 80,000 \
\hline \text { Accounts Receivable } & \$ 60,000 & \$ 24,000 & \$ 24,000 \\hline \text { Inventory } & \$ 30,000 & \$ 54,000 & \$ 50,000 \
\hline \text { Plant and Equipment (net) } & \$ 310,000 & \$ 280,000 & \$ 300,000 \
\hline \text { Trademark } & & \$ 12,000 & \$ 16,000 \\hline \text { Total Assets } & \$ 700,000 & \$ 450,000 \
\hline \text { Accounts Payable } & \$ 150,000 & \$ 200,000 &\$200,000\\hline \text { Bonds Payable } & \$ 400,000 & \$ 120,000&\$100,000 \
\hline \text { Common Shares } & \$ 100,000 & \$ 60,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 70,000 \
\hline \text { Total Liabilities and Equity } & \$ 700,000 & \$ 450,000 \
\hline
\end{array}$ Assuming that Keen Inc. purchases 100% of Lax Inc. for cash of $200,000 on November 1, 2019, prepare the consolidated balance sheet on the date of acquisition under the Fair Value Enterprise Method.

Accepted Answer

Keen Inc.
Consolidat

Question 5

Keen Inc and Lax Inc had the following balance sheets on October 31, 2019:
 $\begin{array}{|l|r|r|r|}
\hline & \text { Keen Inc } & \text { Lax Inc } & \text { Lax Inc } \
\hline & \text { (carrying value) } & \text { (carrying value) } & \text { (fair value) } \
\hline \text { Cash } & \$ 300,000 & \$ 80,000 & \$ 80,000 \
\hline \text { Accounts Receivable } & \$ 60,000 & \$ 24,000 & \$ 24,000 \\hline \text { Inventory } & \$ 30,000 & \$ 54,000 & \$ 50,000 \
\hline \text { Plant and Equipment (net) } & \$ 310,000 & \$ 280,000 & \$ 300,000 \
\hline \text { Trademark } & & \$ 12,000 & \$ 16,000 \\hline \text { Total Assets } & \$ 700,000 & \$ 450,000 \
\hline \text { Accounts Payable } & \$ 150,000 & \$ 200,000 &\$200,000\\hline \text { Bonds Payable } & \$ 400,000 & \$ 120,000&\$100,000 \
\hline \text { Common Shares } & \$ 100,000 & \$ 60,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 70,000 \
\hline \text { Total Liabilities and Equity } & \$ 700,000 & \$ 450,000 \
\hline
\end{array}$ Assuming that Keen Purchases 100% of Lax for a consideration of $100,000 on September 1, 2019, and accounts for its investment using the cost method, prepare (under the Fair Value Enterprise Method):
a) the journal entry that Keen Inc. would make to record the acquisition;
b) the elimination entry necessary to produce consolidated balance sheet on the acquisition date.

Accepted Answer

a)
 @#IMG-DLM& b)
 @#IMG-DLM& Note: Negative Goodwill amount

Question 6

Keen Inc. and Lax Inc. had the following balance sheets on October 31, 2019:
 $\begin{array}{|l|r|r|r|}
\hline & \text { Keen Inc } & \text { Lax Inc } & \text { Lax Inc } \
\hline & \text { (carrying value) } & \text { (carrying value) } & \text { (fair value) } \
\hline \text { Cash } & \$ 300,000 & \$ 80,000 & \$ 80,000 \
\hline \text { Accounts Receivable } & \$ 60,000 & \$ 24,000 & \$ 24,000 \\hline \text { Inventory } & \$ 30,000 & \$ 54,000 & \$ 50,000 \
\hline \text { Plant and Equipment (net) } & \$ 310,000 & \$ 280,000 & \$ 300,000 \
\hline \text { Trademark } & & \$ 12,000 & \$ 16,000 \\hline \text { Total Assets } & \$ 700,000 & \$ 450,000 \
\hline \text { Accounts Payable } & \$ 150,000 & \$ 200,000 &\$200,000\\hline \text { Bonds Payable } & \$ 400,000 & \$ 120,000&\$100,000 \
\hline \text { Common Shares } & \$ 100,000 & \$ 60,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 70,000 \
\hline \text { Total Liabilities and Equity } & \$ 700,000 & \$ 450,000 \
\hline
\end{array}$ On November 1, 2019, Keen acquired 80% of Lax Inc. for cash consideration of $240,000. Assume that the following draft balance sheet was prepared by a co-worker on the date of acquisition. Assuming this balance sheet is devoid of technical errors, what can be concluded about the balance sheet below?

Accepted Answer

Keen Inc.
Consolidated Balance Sheet,
as

Question 7

Any negative goodwill arising on the date of acquisition:

Accepted Answer

A)  is prorated among the parent company's identifiable net assets. 
B)  is recognized as a gain on the date of acquisition. 
C)  should be amortized over a predetermined period. 
D)  is recognized as a gain on date of acquisition by both the parent and the non-controlling interest. 
A)  is prorated among the parent company's identifiable net assets. 
B)  is recognized as a gain on the date of acquisition. 
C)  should be amortized over a predetermined period. 
D)  is recognized as a gain on date of acquisition by both the parent and the non-controlling interest.

Question 8

A business combination involves a contingent consideration. It is considered 70% probable that a payment of $500,000 will become payable three years after the acquisition date. Using a 7% discount rate, what liability should be recorded for the contingent consideration on the acquisition date?

Accepted Answer

A)  $285,704 
B)  $350,000 
C)  $408,149 
D)  $500,000 
A)  $285,704 
B)  $350,000 
C)  $408,149 
D)  $500,000

Question 9

The focus of the consolidated financial statements on the shareholders of the parent company is characteristic of:

Accepted Answer

A)  the fair value enterprise method. 
B)  The proportionate consolidation method. 
C)  the parent company method. 
D)  both the parent Company method and the proportionate consolidation method. 
A)  the fair value enterprise method. 
B)  The proportionate consolidation method. 
C)  the parent company method. 
D)  both the parent Company method and the proportionate consolidation method.

Question 10

Under the parent company method, which of the following statements pertaining to consolidated financial statements is TRUE?

Accepted Answer

A)  The consolidated balance sheet is prepared by adding the carrying amounts of both the parent and its subsidiary. 
B)  The consolidated balance sheet is prepared by adding the carrying amounts of both the parent and its subsidiary as well as the parent's share of any acquisition differentials. 
C)  The consolidated balance sheet is prepared by adding the fair market values of both the Parent and its subsidiary as well as the parent's share of any acquisition differentials. 
D)  The consolidated balance sheet is prepared by adding together the fair market values of both the parent and its subsidiary. 
A)  The consolidated balance sheet is prepared by adding the carrying amounts of both the parent and its subsidiary. 
B)  The consolidated balance sheet is prepared by adding the carrying amounts of both the parent and its subsidiary as well as the parent's share of any acquisition differentials. 
C)  The consolidated balance sheet is prepared by adding the fair market values of both the Parent and its subsidiary as well as the parent's share of any acquisition differentials. 
D)  The consolidated balance sheet is prepared by adding together the fair market values of both the parent and its subsidiary.

Question 11

Keen Inc and Lax Inc had the following balance sheets on October 31, 2019:
 $\begin{array}{|l|r|r|r|}
\hline & \text { Keen Inc } & \text { Lax Inc } & \text { Lax Inc } \
\hline & \text { (carrying value) } & \text { (carrying value) } & \text { (fair value) } \
\hline \text { Cash } & \$ 300,000 & \$ 80,000 & \$ 80,000 \
\hline \text { Accounts Receivable } & \$ 60,000 & \$ 24,000 & \$ 24,000 \\hline \text { Inventory } & \$ 30,000 & \$ 54,000 & \$ 50,000 \
\hline \text { Plant and Equipment (net) } & \$ 310,000 & \$ 280,000 & \$ 300,000 \
\hline \text { Trademark } & & \$ 12,000 & \$ 16,000 \\hline \text { Total Assets } & \$ 700,000 & \$ 450,000 \
\hline \text { Accounts Payable } & \$ 150,000 & \$ 200,000 &\$200,000\\hline \text { Bonds Payable } & \$ 400,000 & \$ 120,000&\$100,000 \
\hline \text { Common Shares } & \$ 100,000 & \$ 60,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 70,000 \
\hline \text { Total Liabilities and Equity } & \$ 700,000 & \$ 450,000 \
\hline
\end{array}$ Assuming that Keen Purchases 80% of Lax for a cash consideration of $240,000 on November 1, 2019, prepare (under the Fair Value Enterprise Method):
a) the journal entry that Keen Inc. would make to record the acquisition;
b) the elimination entry necessary to produce consolidated balance sheet on the acquisition date.

Accepted Answer

The answer of Keen Inc and Lax Inc had the...

Question 12

A business combination involves a contingent consideration. It is considered 70% probable that a payment of $500,000 will become payable three years after the acquisition date. Using a 7% discount rate, how much interest expense should be recorded on the liability for the first year after acquisition?

Accepted Answer

A)  $19,999 
B)  $24,500 
C)  $28,570 
D)  $35,000 
A)  $19,999 
B)  $24,500 
C)  $28,570 
D)  $35,000

Question 13

A negative acquisition differential:

Accepted Answer

A)  is always equal to negative goodwill. 
B)  occurs when the fair value of the subsidiary's net assets are less than their carrying amounts. 
C)  implies that the parent company may have overpaid for its acquisition. 
D)  cannot occur under the acquisition method. 
A)  is always equal to negative goodwill. 
B)  occurs when the fair value of the subsidiary's net assets are less than their carrying amounts. 
C)  implies that the parent company may have overpaid for its acquisition. 
D)  cannot occur under the acquisition method.

Question 14

After the introduction of the Fair Value Enterprise (FVE) method in Canada, many companies opted to value the non-controlling interest in subsidiaries based on the fair value of the subsidiary's identifiable net assets at the acquisition date instead of valuing the non-controlling interest at its fair value. That is, they opted to use the Identifiable Net Assets (INA) method rather than the FVE method when preparing consolidated financial statements. What motivation might preparers of consolidated financial statements have that would cause them to have this preference?

Accepted Answer

Using the Identifiable Net Assets (INA)

Question 15

Discuss the disclosure requirements for long term investments including accounting policies and non-controlling interest (NCI).
Companies should disclose their policies with regard to long-term investments. The general presumptions regarding the factors that establish a control investment and noted that these presumptions could be overcome in certain situations.
IFRS 3 Business Combinations requires that a reporting entity describe the basis for its assessment and any significant assumptions or judgments when the reporting entity has concluded that:

Accepted Answer

(a) it controls an entity whose activiti

Question 16

Contingent consideration will be classified as a liability when:

Accepted Answer

A)  it will be paid in the form of additional equity. 
B)  it will be paid in the form of cash or another asset. 
C)  the form of payment will be determined at a future date. 
D)  the acquirer decides the appropriate time to make a payment. 
A)  it will be paid in the form of additional equity. 
B)  it will be paid in the form of cash or another asset. 
C)  the form of payment will be determined at a future date. 
D)  the acquirer decides the appropriate time to make a payment.

Question 17

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: \(\begin{array}{|l|r|r|r|}
\hline & \text { Parent Inc } & \text { Sub Inc } & \text { Sub Inc } \
\hline & \text { (caryying value) } & \begin{array}{r}
\text { (carrying } \
\text { value) }
\end{array} & \text { (fair value) } \\hline \text { Cash } & \$ 180,000 & \$ 36,000 & \$ 36,000 \
\hline \text { Accounts Receivable } & \$ 100,000 & \$ 40,000 & \$ 40,000 \
\hline \text { Inventory } & \$ 60,000 & \$ 24,000 & \$ 27,000 \\hline \text { Plant and Equipment (net) } & \$ 200,000 & \$ 80,000 & \$ 93,000 \
\hline \text { Goodwill } & \$- & \$ 8,000 & \
\hline \text { Trademark } & \$- & \$ 12,000 & \$ 15,000 \\hline \text { Total Assets } & \$ \mathbf{5 4 0 , 0 0 0} & \$ 200,000 & \
\hline \text { Current Liabilities } & \$ 80,000 & \$ 50,000 & \$ 50,000 \
\hline \text { Bonds Payable } & \$ 320,000 & \$ 20,000 & \$ 24,000 \\hline \text { Common Shares } & \$ 90,000 & \$ 80,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 50,000 \
\hline \text { Total Liabilities and Equity } & \$ 540,000 & \$ 200,000 \
\hline
\end{array}\) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, what would be the amount of goodwill appearing on the Consolidated Balance Sheet on the date of acquisition if the fair value enterprise (FVE) method were used?

Accepted Answer

A)  $72,000 
B)  $88,000 
C)  $70,400 
D)  Nil 
A)  $72,000 
B)  $88,000 
C)  $70,400 
D)  Nil

Question 18

Which accounts differ on the consolidated balance sheet when using the fair value enterprise method compared to the identifiable net assets method?

Accepted Answer

A)  The investment in subsidiary balance and the consolidated retained earnings balance. 
B)  The goodwill balance and the consolidated retained earnings balance. 
C)  The goodwill balance and the non-controlling interest balance. 
D)  The investment in subsidiary balance and the non-controlling interest balance. 
A)  The investment in subsidiary balance and the consolidated retained earnings balance. 
B)  The goodwill balance and the consolidated retained earnings balance. 
C)  The goodwill balance and the non-controlling interest balance. 
D)  The investment in subsidiary balance and the non-controlling interest balance.

Question 19

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: \(\begin{array}{|l|r|r|r|}
\hline & \text { Parent Inc } & \text { Sub Inc } & \text { Sub Inc } \
\hline & \text { (caryying value) } & \begin{array}{r}
\text { (carrying } \
\text { value) }
\end{array} & \text { (fair value) } \\hline \text { Cash } & \$ 180,000 & \$ 36,000 & \$ 36,000 \
\hline \text { Accounts Receivable } & \$ 100,000 & \$ 40,000 & \$ 40,000 \
\hline \text { Inventory } & \$ 60,000 & \$ 24,000 & \$ 27,000 \\hline \text { Plant and Equipment (net) } & \$ 200,000 & \$ 80,000 & \$ 93,000 \
\hline \text { Goodwill } & \$- & \$ 8,000 & \
\hline \text { Trademark } & \$- & \$ 12,000 & \$ 15,000 \\hline \text { Total Assets } & \$ \mathbf{5 4 0 , 0 0 0} & \$ 200,000 & \
\hline \text { Current Liabilities } & \$ 80,000 & \$ 50,000 & \$ 50,000 \
\hline \text { Bonds Payable } & \$ 320,000 & \$ 20,000 & \$ 24,000 \\hline \text { Common Shares } & \$ 90,000 & \$ 80,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 50,000 \
\hline \text { Total Liabilities and Equity } & \$ 540,000 & \$ 200,000 \
\hline
\end{array}\) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, what would be the amount of goodwill appearing on the Consolidated Balance Sheet on the date of acquisition if the identifiable net assets (INA) method were used?

Accepted Answer

A)  $72,000 
B)  $88,000 
C)  $70,400 
D)  Nil 
A)  $72,000 
B)  $88,000 
C)  $70,400 
D)  Nil

Question 20

When a contingent consideration arising from a business combination is classified as equity, how is any change in its fair value accounted for if the difference arises due to a change in circumstances?

Accepted Answer

A)  As an adjustment to the consideration paid for the subsidiary. 
B)  As an adjustment to an estimate included in the determination of net income. 
C)  As a memorandum entry indicating that additional shares had been issued. 
D)  As an adjustment to consolidated contributed surplus. 
A)  As an adjustment to the consideration paid for the subsidiary. 
B)  As an adjustment to an estimate included in the determination of net income. 
C)  As a memorandum entry indicating that additional shares had been issued. 
D)  As an adjustment to consolidated contributed surplus.

Which consolidation method should be used in preparing consolidated financial statements in accordance with IFRS?

Which of the following statements pertaining to the non-controlling interest (NCI) when using the identifiable net assets (INA) method is TRUE?

When the parent forms a new subsidiary:

Any negative goodwill arising on the date of acquisition:

A business combination involves a contingent consideration. It is considered 70% probable that a payment of $500,000 will become payable three years after the acquisition date. Using a 7% discount rate, what liability should be recorded for the contingent consideration on the acquisition date?

The focus of the consolidated financial statements on the shareholders of the parent company is characteristic of:

Under the parent company method, which of the following statements pertaining to consolidated financial statements is TRUE?

A negative acquisition differential:

Contingent consideration will be classified as a liability when:

Which accounts differ on the consolidated balance sheet when using the fair value enterprise method compared to the identifiable net assets method?

When a contingent consideration arising from a business combination is classified as equity, how is any change in its fair value accounted for if the difference arises due to a change in circumstances?

Conceptual and Case Analysis Frameworks for Financial Reporting

Investments in Equity Securities

Business Combinations

Consolidation Subsequent to Acquisition Date

Intercompany Inventory and Land Profits

A Intercompany Profits in Depreciable Assets B Intercompany Bondholdings

Consolidated Cash Flows and Changes in Ownership

Other Consolidation Reporting Issues

Foreign Currency Transactions

Translation and Consolidation of Foreign Operations

Accounting for Not-For-Profit and Public Sector Organizations

Filters

Exam 4: Consolidation of Non-Wholly Owned Subsidiaries

Which consolidation method should be used in preparing consolidated financial statements in accordance with IFRS?

Which of the following statements pertaining to the non-controlling interest (NCI) when using the identifiable net assets (INA) method is TRUE?

When the parent forms a new subsidiary:

Any negative goodwill arising on the date of acquisition:

A business combination involves a contingent consideration. It is considered 70% probable that a payment of $500,000 will become payable three years after the acquisition date. Using a 7% discount rate, what liability should be recorded for the contingent consideration on the acquisition date?

The focus of the consolidated financial statements on the shareholders of the parent company is characteristic of:

Under the parent company method, which of the following statements pertaining to consolidated financial statements is TRUE?

A negative acquisition differential:

Contingent consideration will be classified as a liability when:

Which accounts differ on the consolidated balance sheet when using the fair value enterprise method compared to the identifiable net assets method?

When a contingent consideration arising from a business combination is classified as equity, how is any change in its fair value accounted for if the difference arises due to a change in circumstances?

Conceptual and Case Analysis Frameworks for Financial Reporting

Investments in Equity Securities

Business Combinations

Consolidation Subsequent to Acquisition Date

Intercompany Inventory and Land Profits

A Intercompany Profits in Depreciable Assets B Intercompany Bondholdings

Consolidated Cash Flows and Changes in Ownership

Other Consolidation Reporting Issues

Foreign Currency Transactions

Translation and Consolidation of Foreign Operations

Accounting for Not-For-Profit and Public Sector Organizations

Filters