Question 1

'Control' exists when the parent owns less than half of the voting power of an entity when:

Accepted Answer

A)  no other entity owns more than half either. 
B)  there is power to govern the financial and operating policies of the entity under a statute. 
C)  there is power to govern the financial and operating policies of the entity under an agreement. 
D)  there is power to govern the financial and operating policies of the entity under a statute and there is power to govern the financial and operating policies of the entity under an agreement. 
E)  no other entity owns more than half either, there is power to govern the financial and operating policies of the entity under a statute and there is power to govern the financial and operating policies of the entity under an agreement. 
A)  no other entity owns more than half either. 
B)  there is power to govern the financial and operating policies of the entity under a statute. 
C)  there is power to govern the financial and operating policies of the entity under an agreement. 
D)  there is power to govern the financial and operating policies of the entity under a statute and there is power to govern the financial and operating policies of the entity under an agreement. 
E)  no other entity owns more than half either, there is power to govern the financial and operating policies of the entity under a statute and there is power to govern the financial and operating policies of the entity under an agreement. D

Question 2

Under AASB 127:

Accepted Answer

A)  Management may agree with the auditors a flexible arrangement for the presentation of the group accounts where some companies or trusts within the group have a nature of business or location that makes their pattern of return and risk significantly different to the remaining entities in the group. 
B)  Companies that are non-homogeneous with the overall nature of the business of the group are prohibited from being consolidated and are required to have their financial statements presented separately. 
C)  Finance companies, which are highly geared by nature, are not required to be included in the consolidated accounts of groups that are not significantly involved in the finance business. 
D)  Companies within a group that are in distinctly different businesses do not have to be consolidated into a single set of consolidated accounts. 
E)  None of the given answers. 
A)  Management may agree with the auditors a flexible arrangement for the presentation of the group accounts where some companies or trusts within the group have a nature of business or location that makes their pattern of return and risk significantly different to the remaining entities in the group. 
B)  Companies that are non-homogeneous with the overall nature of the business of the group are prohibited from being consolidated and are required to have their financial statements presented separately. 
C)  Finance companies, which are highly geared by nature, are not required to be included in the consolidated accounts of groups that are not significantly involved in the finance business. 
D)  Companies within a group that are in distinctly different businesses do not have to be consolidated into a single set of consolidated accounts. 
E)  None of the given answers. E

Question 3

Which of the following statements is not correct?

Accepted Answer

A)  A group comprises a parent and all of its subsidiaries. 
B)  Consolidated financial statements are financial statements of a group of entities presented as if that group was acting as a single economic entity. 
C)  A subsidiary is an entity that is controlled by another entity. 
D)  A parent is an entity that has more than one subsidiary. 
E)  None of the given answers; they are all correct statements. 
A)  A group comprises a parent and all of its subsidiaries. 
B)  Consolidated financial statements are financial statements of a group of entities presented as if that group was acting as a single economic entity. 
C)  A subsidiary is an entity that is controlled by another entity. 
D)  A parent is an entity that has more than one subsidiary. 
E)  None of the given answers; they are all correct statements. D

Question 4

Banderas Ltd acquires all the issued capital of Ryan Ltd for a cash payment of $2,900,000 on 30 June 2004.The balance sheet of Ryan Ltd at purchase date is:   Assuming the assets are at fair value,what is the consolidation entry to eliminate the investment in Ryan Ltd?

Accepted Answer

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

Question 5

A subsidiary is an entity that is controlled by a parent entity:

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is not in accordance with AASB 3 "Business Combinations"?

Accepted Answer

A)  An entity shall account for each business combination by applying the acquisition method. 
B)  For each business combination, one of the combining entities shall be identified as the acquirer. 
C)  The acquirer is required to recognise, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. 
D)  The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition-date agreed values. 
E)  None of the given answers. 
A)  An entity shall account for each business combination by applying the acquisition method. 
B)  For each business combination, one of the combining entities shall be identified as the acquirer. 
C)  The acquirer is required to recognise, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. 
D)  The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition-date agreed values. 
E)  None of the given answers.

Question 7

In the consolidated financial statements of the parent entity and its controlled entities only transactions with assets and liabilities relating to parties external to the economic entity will be reflected.

Accepted Answer

A) True 
 B)False

Question 8

AASB 127 requires the parent company to have control of another entity in order for that entity's consolidation into the group accounts to be required.

Accepted Answer

A) True 
 B)False

Question 9

A consolidated entity is defined in the Corporations Act 2001 as:

Accepted Answer

A)  The company and its subsidiaries at the end of the financial year. Subsidiaries are companies and trusts as defined in terms of this Act. 
B)  A company, registered management investment scheme or disclosing entity together with all the entities it is required by Accounting Standards to include in consolidated financial statements. 
C)  A trust or partnership registered as a management investment scheme and all the entities it controls at the end of the financial year. 
D)  The parent company, minority interests and subsidiaries owned by that parent company as at the end of the financial year. 
E)  None of the given answers. 
A)  The company and its subsidiaries at the end of the financial year. Subsidiaries are companies and trusts as defined in terms of this Act. 
B)  A company, registered management investment scheme or disclosing entity together with all the entities it is required by Accounting Standards to include in consolidated financial statements. 
C)  A trust or partnership registered as a management investment scheme and all the entities it controls at the end of the financial year. 
D)  The parent company, minority interests and subsidiaries owned by that parent company as at the end of the financial year. 
E)  None of the given answers.

Question 10

The preparation of consolidated financial statements:

Accepted Answer

A)  obviates the need for separate entities to prepare and release their own separate financial statements. 
B)  does not obviate the need for separate entities to prepare and release their own separate financial statements. 
C)  should be done in accordance with AASB 127. 
D)  obviates the need for separate entities to prepare and release their own separate financial statements and should be done in accordance with AASB 127. 
E)  does not obviate the need for separate entities to prepare and release their own separate financial statements and should be done in accordance with AASB 127. 
A)  obviates the need for separate entities to prepare and release their own separate financial statements. 
B)  does not obviate the need for separate entities to prepare and release their own separate financial statements. 
C)  should be done in accordance with AASB 127. 
D)  obviates the need for separate entities to prepare and release their own separate financial statements and should be done in accordance with AASB 127. 
E)  does not obviate the need for separate entities to prepare and release their own separate financial statements and should be done in accordance with AASB 127.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

It is possible for one entity to control another entity under the AASB 3 definition without the controlling entity having any equity-ownership interest in the other entity:

Accepted Answer

A) True 
 B)False

Question 13

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 3:

Accepted Answer

A) True 
 B)False

Question 14

The factors that are taken into consideration in determining whether or not an entity should be consolidated under AASB 127 include:

Accepted Answer

A)  The nature of the legal form of the entity and whether or not the 'parent' entity owns enough of the equity in the entity to effectively control the benefits that flow from the relationship with the other entity. 
B)  Whether or not the potential 'parent' entity controls the other entity. 
C)  The number of members on the board under the control of the potential 'parent' entity, and whether or not the other entity has been partitioned by the potential 'parent' entity. 
D)  Whether or not the potential 'parent' entity controls the other entity and whether or not it is in a significantly different business to the potential 'parent'. 
E)  None of the given answers. 
A)  The nature of the legal form of the entity and whether or not the 'parent' entity owns enough of the equity in the entity to effectively control the benefits that flow from the relationship with the other entity. 
B)  Whether or not the potential 'parent' entity controls the other entity. 
C)  The number of members on the board under the control of the potential 'parent' entity, and whether or not the other entity has been partitioned by the potential 'parent' entity. 
D)  Whether or not the potential 'parent' entity controls the other entity and whether or not it is in a significantly different business to the potential 'parent'. 
E)  None of the given answers.

Question 15

Sigmund Ltd acquires all the issued capital of Freud Ltd for a cash payment of $1,900,000 on 30 June 2004.The financial statements of both entities on 30 June 2005 are:   The fair value of the net tangible assets of Freud Ltd on 30 June 2004 was $1,332,000.The equity of Freud at that time was made up of share capital of $1,172,000 and retained earnings of $160,000.Goodwill had been determined to have been impaired by $56,800 during the period.During the period ended 30 June 2005 there were no intragroup transactions.Which of the following consolidated financial statements is correct?

Accepted Answer

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

Question 16

Where separate entities in a group do not apply the same accounting methods,AASB 127 "Consolidated and Separate Financial Statements" prescribes adjustments to be made on consolidation to remove the impacts of different accounting policies.

Accepted Answer

A) True 
 B)False

Question 17

The consolidation concept adopted in AASB 127 is to include all the assets and liabilities of the parent entity and subsidiaries in the consolidation and to treat minority interests as part of the equity of the group:

Accepted Answer

A) True 
 B)False

Question 18

A subsidiary:

Accepted Answer

A)  is excluded from consolidation because the investor is a venture capital organisation. 
B)  is not excluded from consolidation simply because the investor is a venture capital organisation. 
C)  is excluded from consolidation because its business activities are dissimilar from those of other entities within the group. 
D)  is not excluded from consolidation simply because the investor only has significant influence, and not control, over it. 
E)  is excluded from consolidation because the investor has no Board representation in the subsidiary. 
A)  is excluded from consolidation because the investor is a venture capital organisation. 
B)  is not excluded from consolidation simply because the investor is a venture capital organisation. 
C)  is excluded from consolidation because its business activities are dissimilar from those of other entities within the group. 
D)  is not excluded from consolidation simply because the investor only has significant influence, and not control, over it. 
E)  is excluded from consolidation because the investor has no Board representation in the subsidiary.

Question 19

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?

Accepted Answer

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

Question 20

After initial recognition,goodwill is measured in which of the following ways?

Accepted Answer

A)  At cost. 
B)  At fair value. 
C)  At cost less accumulated impairment losses. 
D)  At cost less accumulated amortisation. 
E)  In any of the ways mentioned above, at the discretion of entity management. 
A)  At cost. 
B)  At fair value. 
C)  At cost less accumulated impairment losses. 
D)  At cost less accumulated amortisation. 
E)  In any of the ways mentioned above, at the discretion of entity management.

Exam 28: Accounting for Group Structures

'Control' exists when the parent owns less than half of the voting power of an entity when:

Under AASB 127:

Which of the following statements is not correct?

Banderas Ltd acquires all the issued capital of Ryan Ltd for a cash payment of $2,900,000 on 30 June 2004.The balance sheet of Ryan Ltd at purchase date is: Assuming the assets are at fair value,what is the consolidation entry to eliminate the investment in Ryan Ltd?

A subsidiary is an entity that is controlled by a parent entity:

Which of the following statements is not in accordance with AASB 3 "Business Combinations"?

In the consolidated financial statements of the parent entity and its controlled entities only transactions with assets and liabilities relating to parties external to the economic entity will be reflected.

AASB 127 requires the parent company to have control of another entity in order for that entity's consolidation into the group accounts to be required.

A consolidated entity is defined in the Corporations Act 2001 as:

The preparation of consolidated financial statements:

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

It is possible for one entity to control another entity under the AASB 3 definition without the controlling entity having any equity-ownership interest in the other entity:

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 3:

The factors that are taken into consideration in determining whether or not an entity should be consolidated under AASB 127 include:

Where separate entities in a group do not apply the same accounting methods,AASB 127 "Consolidated and Separate Financial Statements" prescribes adjustments to be made on consolidation to remove the impacts of different accounting policies.

The consolidation concept adopted in AASB 127 is to include all the assets and liabilities of the parent entity and subsidiaries in the consolidation and to treat minority interests as part of the equity of the group:

A subsidiary:

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?

After initial recognition,goodwill is measured in which of the following ways?

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

Further Consolidation Issues I: Accounting for Intragroup Transact

Further Consolidation Issues II: Accounting for Minority Interests

Further Consolidation Issues III: Accounting for Indirect Ownershi

Further Consolidation Issues Iv: Accounting for Changes in the Deg

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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