Question 1

'Goodwill' is:

Accepted Answer

A)  an intangible asset, as defined in AASB 138. 
B)  future economic benefits arising from assets that are not capable of being separately recognised or individually identified 
C)  determined as being the excess of the fair value of the identifiable net assets acquired over the cost of an acquisition. 
D)  recognised by the acquirer, at acquisition date, as an asset in its own books. 
E)  All of the given answers. 
A)  an intangible asset, as defined in AASB 138. 
B)  future economic benefits arising from assets that are not capable of being separately recognised or individually identified 
C)  determined as being the excess of the fair value of the identifiable net assets acquired over the cost of an acquisition. 
D)  recognised by the acquirer, at acquisition date, as an asset in its own books. 
E)  All of the given answers.

Question 2

Gouda Ltd acquires all the issued capital of Cheese Ltd for a cash payment of $2,545,000 on 30 June 2005.The balance sheet of Cheese Ltd at purchase date is:   Assuming the assets are at fair value,what would be the consolidation entry to eliminate the investment in Cheese Ltd?

Accepted Answer

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

Question 3

Growl Ltd acquires all the issued capital of Tiger Ltd for a cash payment of $5,000,000 on 30 June 2005.The balance sheet of Tiger Ltd at purchase date is:   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?

Accepted Answer

A)  $500,000 goodwill 
B)  $300,000 discount 
C)  $800,000 goodwill 
D)  $389,000 discount 
E)  None of the given answers. 
A)  $500,000 goodwill 
B)  $300,000 discount 
C)  $800,000 goodwill 
D)  $389,000 discount 
E)  None of the given answers.

Question 4

AASB 127 "Consolidated and Separate Financial Statements" permits the reporting periods of entities in the group to be dissimilar as long as adjustments are made on consolidation to remove the impacts of different reporting periods.

Accepted Answer

A) True 
 B)False

Question 5

Candle Ltd acquires all the issued capital of Wick Ltd for a cash payment of $4,500,000 on 30 June 2004.The balance sheet of Wick Ltd at purchase date is:   The fair value of the net assets of Wick Ltd as at 30 June 2004 is $3,800,000.What is the consolidation entry to eliminate the investment in Wick Ltd?

Accepted Answer

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

Question 6

As prescribed in AASB 3 "Business Combinations",when an acquirer makes a bargain purchase,the acquirer recognises the excess as goodwill on acquisition date.

Accepted Answer

A) True 
 B)False

Question 7

When group members do not apply the same accounting methods,the consolidation process requires which of the following to be done?

Accepted Answer

A)  All group members must change their accounting policies to be consistent. 
B)  Adjustments must be made on consolidation to remove the impacts of the different policies. 
C)  Two sets of consolidated accounts need to be presenteD. the first done on the basis of the inconsistent policies; the second done after the subsidiaries have adjusted their policies in line with the parent. 
D)  A choice is to be made by the parent's management between any of the three other options listed. 
E)  Nothing needs to be done. 
A)  All group members must change their accounting policies to be consistent. 
B)  Adjustments must be made on consolidation to remove the impacts of the different policies. 
C)  Two sets of consolidated accounts need to be presenteD. the first done on the basis of the inconsistent policies; the second done after the subsidiaries have adjusted their policies in line with the parent. 
D)  A choice is to be made by the parent's management between any of the three other options listed. 
E)  Nothing needs to be done.

Question 8

On 1 July 2012,Bob Ltd acquires all shares in Ted Ltd for $600 000.The fair value of net assets acquired is $500 000 comprised of $400,000 in share capital and $100 000 in retained earnings.What is the appropriate elimination entry for this investment that is in accordance with AASB 3 "Business Combinations" and AASB 127 "Consolidated and Separate Financial Statements"?

Accepted Answer

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

Question 9

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 127?

Accepted Answer

A)  Gigi Ltd should be required to consolidate the trust as it controls the operating and financing decisions. 
B)  Gigi Ltd should not be required to consolidate Bonberre trust because a trust cannot be a subsidiary under The Corporations Law. 
C)  Gigi Ltd should treat the trust as an investment in its books, valued at the present value of any future income streams expected to be received in return for managing the trust. 
D)  Gigi Ltd should not consolidate the trust because, while it does control the financing and operating decisions of the trust, it cannot do so in a way to benefit Gigi Ltd. 
E)  None of the given answers. 
A)  Gigi Ltd should be required to consolidate the trust as it controls the operating and financing decisions. 
B)  Gigi Ltd should not be required to consolidate Bonberre trust because a trust cannot be a subsidiary under The Corporations Law. 
C)  Gigi Ltd should treat the trust as an investment in its books, valued at the present value of any future income streams expected to be received in return for managing the trust. 
D)  Gigi Ltd should not consolidate the trust because, while it does control the financing and operating decisions of the trust, it cannot do so in a way to benefit Gigi Ltd. 
E)  None of the given answers.

Question 10

'Control' over a subsidiary,once determined as being in existence,can only be lost with a change in the level of ownership:

Accepted Answer

A) True 
 B)False

Question 11

On 1 July 2012,Carol Ltd acquires all shares in Alice Ltd for $400 000.The fair value of net assets acquired is $320 000 comprised of $200,000 in share capital and $120 000 in retained earnings.On the date of purchase,a contingent liability is not recoded in the books of the acquiree but assumed by the acquirer.The contingent liability is estimated at $20 000 and likely to eventuate after acquisition.What is the appropriate elimination entry for this investment that is in accordance with AASB 3 "Business Combinations" and AASB 127 "Consolidated and Separate Financial Statements"?

Accepted Answer

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

Question 12

Which of the following consolidation concepts are described correctly?

Accepted Answer

A)  The entity concept requires the inclusion of all the parent entity assets and the proportionate share of the assets and liabilities of the subsidiaries where the proportion is based on the direct ownership of the capital of the subsidiary by parent companies within the group. 
B)  The proprietary concept includes all the assets and liabilities of the parent company and subsidiaries as assets and liabilities of the group. Minority interest is treated as a liability of the group. 
C)  The parent-entity concept includes all assets and liabilities of the parent and its subsidiaries in the consolidated accounts. The minority interest is treated as a liability of the group. 
D)  The proprietary concept includes all the assets and liabilities of the parent company and subsidiaries as assets and liabilities of the group. Minority interest is treated as a liability of the group; the parent-entity concept includes all assets and liabilities of the parent and its subsidiaries in the consolidated accounts. The minority interest is treated as a liability of the group. 
E)  None of the given answers. 
A)  The entity concept requires the inclusion of all the parent entity assets and the proportionate share of the assets and liabilities of the subsidiaries where the proportion is based on the direct ownership of the capital of the subsidiary by parent companies within the group. 
B)  The proprietary concept includes all the assets and liabilities of the parent company and subsidiaries as assets and liabilities of the group. Minority interest is treated as a liability of the group. 
C)  The parent-entity concept includes all assets and liabilities of the parent and its subsidiaries in the consolidated accounts. The minority interest is treated as a liability of the group. 
D)  The proprietary concept includes all the assets and liabilities of the parent company and subsidiaries as assets and liabilities of the group. Minority interest is treated as a liability of the group; the parent-entity concept includes all assets and liabilities of the parent and its subsidiaries in the consolidated accounts. The minority interest is treated as a liability of the group. 
E)  None of the given answers.

Question 13

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

Accepted Answer

A)  They form part of earnings of the economic entity. 
B)  They are the earnings produced subsequent to the acquisition date by members of the group. 
C)  They are eliminated against the parent's earnings, in a similar fashion to pre-acquisition earnings. 
D)  They form part of earnings of the economic entity and they are eliminated against the parent's earnings, in a similar fashion to pre-acquisition earnings. 
E)  None of the given answers; they are all correct. 
A)  They form part of earnings of the economic entity. 
B)  They are the earnings produced subsequent to the acquisition date by members of the group. 
C)  They are eliminated against the parent's earnings, in a similar fashion to pre-acquisition earnings. 
D)  They form part of earnings of the economic entity and they are eliminated against the parent's earnings, in a similar fashion to pre-acquisition earnings. 
E)  None of the given answers; they are all correct.

Question 14

Arthur Ltd acquires all the issued capital of Martha Ltd for a cash payment of $3,000,000 on 30 June 2005.The balance sheet of Martha Ltd at purchase date is:   Assuming the assets are at fair value,what is the goodwill or excess on consolidation?

Accepted Answer

A)  Goodwill of $500,000 
B)  Excess of $1 580,000 
C)  Goodwill of $510,000 
D)  Excess of $495,000 
E)  None of the given answers. 
A)  Goodwill of $500,000 
B)  Excess of $1 580,000 
C)  Goodwill of $510,000 
D)  Excess of $495,000 
E)  None of the given answers.

Question 15

Which consolidation concept mainly underlies the approach adopted in AASB 127?

Accepted Answer

A)  The proprietary concept. 
B)  The accrual concept. 
C)  The entity concept. 
D)  The parent-entity concept. 
E)  None of the given answers. 
A)  The proprietary concept. 
B)  The accrual concept. 
C)  The entity concept. 
D)  The parent-entity concept. 
E)  None of the given answers.

Question 16

On 1 July 2012,Felix Ltd acquires all shares in Oscar Ltd for $800 000.The fair value of net assets acquired is $620 000 comprised of $400,000 in share capital and $220 000 in retained earnings.What is the appropriate elimination entry for this investment that is in accordance with AASB 3 "Business Combinations" and AASB 127 "Consolidated and Separate Financial Statements"?

Accepted Answer

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

Question 17

The first step in the consolidation process is substituting the assets and liabilities of the subsidiary for the investment account that currently exists in the parent company.

Accepted Answer

A) True 
 B)False

Question 18

'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.

Accepted Answer

A) True 
 B)False

Question 19

Control is defined in AASB 3 as the 'capacity to manage the policies of another entity':

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is not in accordance with AASB 127 "Consolidated and Separate Financial Statements"?

Accepted Answer

A)  A parent need not present consolidated financial statements if the parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity. 
B)  Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. 
C)  A parent consolidates subsidiaries that satisfy the criteria to be classified as assets held for sale. 
D)  Intragroup balances, transactions, income and expenses are eliminated in full for wholly-owned subsidiaries and in proportion to ownership for partially-owned subsidiaries. 
E)  None of the given answers. 
A)  A parent need not present consolidated financial statements if the parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity. 
B)  Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. 
C)  A parent consolidates subsidiaries that satisfy the criteria to be classified as assets held for sale. 
D)  Intragroup balances, transactions, income and expenses are eliminated in full for wholly-owned subsidiaries and in proportion to ownership for partially-owned subsidiaries. 
E)  None of the given answers.

Exam 28: Accounting for Group Structures

'Goodwill' is:

Gouda Ltd acquires all the issued capital of Cheese Ltd for a cash payment of $2,545,000 on 30 June 2005.The balance sheet of Cheese Ltd at purchase date is: Assuming the assets are at fair value,what would be the consolidation entry to eliminate the investment in Cheese Ltd?

AASB 127 "Consolidated and Separate Financial Statements" permits the reporting periods of entities in the group to be dissimilar as long as adjustments are made on consolidation to remove the impacts of different reporting periods.

As prescribed in AASB 3 "Business Combinations",when an acquirer makes a bargain purchase,the acquirer recognises the excess as goodwill on acquisition date.

When group members do not apply the same accounting methods,the consolidation process requires which of the following to be done?

'Control' over a subsidiary,once determined as being in existence,can only be lost with a change in the level of ownership:

Which of the following consolidation concepts are described correctly?

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

Arthur Ltd acquires all the issued capital of Martha Ltd for a cash payment of $3,000,000 on 30 June 2005.The balance sheet of Martha Ltd at purchase date is: Assuming the assets are at fair value,what is the goodwill or excess on consolidation?

Which consolidation concept mainly underlies the approach adopted in AASB 127?

The first step in the consolidation process is substituting the assets and liabilities of the subsidiary for the investment account that currently exists in the parent company.

'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.

Control is defined in AASB 3 as the 'capacity to manage the policies of another entity':

Which of the following statements is not in accordance with AASB 127 "Consolidated and Separate Financial Statements"?

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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