Exam 27: Accounting for Group Structures

It is possible for one entity to control another entity under the AASB 10 definition without the controlling entity having any equity-ownership interest in the other entity.

AASB 3 requires entities to account for business combinations using the acquisition method.Describe the steps required to implement the acquisition method.

In what situation does an excess on acquisition arise and how does AASB 3 require it to be treated?

The purpose of providing consolidated statements is to show the results and financial position of a group as if it were operating with a single source of finance.

Define goodwill,and explain (with an example)how it is determined and accounted for as part of the consolidation process.

On 1 July 2012,Goliath Ltd acquires all shares in David Ltd for $800 000.The fair value of net assets acquired is $920 000 comprised of $600 000 in share capital and $320 000 in retained earnings.What is the appropriate elimination entry for this investment that is in accordance with AASB 3 Business Combinations and AASB 10 Consolidated Financial Statements?

Which of the following statements about post-acquisition earnings is incorrect?

Goodwill is:

Goodwill arises at acquisition date when the purchase price exceeds the identifiable assets acquired and the liabilities assumed.

Gigi Ltd is acting as a trustee for Bonberre trust.Gigi has complete control of the operating and financing decisions of the trust.The nominated beneficiaries of the trust are Mr and Mrs Bonberre,who each receive 50 per cent of the trust profits.Given the situation described,what is Gigi Ltd most likely to be required to do to account for the Bonberre trust under AASB 10?

The lack of a direct link between levels of ownership and control (i.e.the degree of ownership does not,of itself,determine if an entity has control of another):

Panda Ltd acquires all the issued capital of Bear Ltd for a cash payment of $2 545 000 on 30 June 2015.The statement of financial position of Bear Ltd at purchase date is: ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~(\$ 000)\\ \begin{array}{|l|r|} \hline \text { Assets } & \\ \hline \text { Cash } & 85 \\ \hline \text { Accounts receivable } & 185 \\ \hline \text { Equipment } & 990 \\ \hline \text { Land } & \underline{1285} \\ \hline \text { Total assets } &\underline{ 2545} \\ \hline & \\ \hline \text { Liabilities } & \\ \hline \text { Accounts payable } & 45 \\ \hline \text { Loans } & \underline{500} \\ \hline \text { Total liabilities } & \underline{545} \\ \hline & \\ \hline \text { Shareholders' equity } & \\ \hline \text { Share capital } & 1500 \\ \hline \text { Retained earnings } & \underline{500} \\ \hline \text { Total liabilities and shareholders' funds } &\underline{2545} \\ \hline \end{array} Assuming the assets are at fair value,what amount of goodwill would be recorded in the books of Bear Ltd and what amount would be recorded in the consolidated statements at the date of purchase?

Non-controlling interests (minority interests)are defined as the equity in the parent company that is not provided by the group shareholders.

Which of the following statements accurately describes important aspects of consolidation after the date of acquisition?

A company may own more than 50 per cent of the capital of another entity and not have effective control of that entity as defined in AASB 10.

Where the controlled entity's non-current assets were not at fair value at the date of purchase and they have not been revalued in the controlled entity's accounts,the treatment in the consolidation entry may include which of the following entries?

Growl Ltd acquires all the issued capital of Tiger Ltd for a cash payment of $5 000 000 on 30 June 2015.The statement of financial position of Tiger Ltd at purchase date is: (\ 000) Assets Cash 500 Accounts receivable 900 Equipment 2990 Land Total assets Liabilities Accounts payable 560 Loans Total liabilities Shareholders' equity Share capital 3200 Retained earnings Total liabilities and shareholders' funds The fair value of the net assets at the date of purchase was $4 200 000.What amount of goodwill or excess would be recorded in the consolidated statements at the date of purchase?

Under AASB 10 parent companies may choose whether to present one set of consolidated accounts or to provide two or more sub-sets of the consolidated accounts to cover the whole group.

'Passive' control implies that it is possible to exert control over another entity even though the option to exert such control may never be exercised.

Which of the following would not be classified as an identifiable intangible asset in accordance with AASB 138 Intangible assets?