Question 1

Minority interests (minority interests)are defined as the equity in the parent company that is not provided by the group shareholders:

Accepted Answer

A) True 
 B)False

Question 2

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):

Accepted Answer

A)  is consistent with the AASB Framework's definition of assets, which relies on control and not legal ownership. 
B)  is consistent with the AASB Framework's definition of assets, which relies on legal ownership and not control. 
C)  is consistent with the AASB Framework's definition of equity, which recognises investments in other entities. 
D)  is consistent with the AASB Framework's definition of equity, which relies on control and not legal ownership. 
E)  is consistent with the AASB Framework's definition of assets, which identifies share ownership as being unimportant. 
A)  is consistent with the AASB Framework's definition of assets, which relies on control and not legal ownership. 
B)  is consistent with the AASB Framework's definition of assets, which relies on legal ownership and not control. 
C)  is consistent with the AASB Framework's definition of equity, which recognises investments in other entities. 
D)  is consistent with the AASB Framework's definition of equity, which relies on control and not legal ownership. 
E)  is consistent with the AASB Framework's definition of assets, which identifies share ownership as being unimportant.

Question 3

Fresco Ltd acquires all the issued capital of Indoor Ltd for a cash payment of $1,000,000 on 30 June 2005.The balance sheet of Indoor Ltd at purchase date is:   Assuming the assets of Indoor Ltd are at fair value,what is the entry to eliminate the investment in Fresco Ltd?

Accepted Answer

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

Question 4

Gingimup Ltd purchased all the equity of Kindawansa Ltd on 30 June 2005.At that time the carrying value of the net assets of Kindawansa was $1,200,000.This amount was made up in equity as follows: share capital $1,000,000; retained earnings $200,000.Kindawansa has held some valuable land for a long time (purchased at $ 1,200,000),but has not revalued it.Its fair value at 30 June 2005 was $2,800,000 (all other non-current assets are recorded at fair value).Gingimup Ltd paid cash consideration of $3,000,000 for Kindawansa Ltd.Assuming that the land has not been revalued in the controlled entity's books,what are the elimination entries required to reflect the purchase of Kindawansa 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

In the situation in which a subsidiary is only controlled temporarily,AASB 127 requires:

Accepted Answer

A)  The investment be recorded at fair market value and any gain or loss on acquisition recognised immediately in the income statement. 
B)  The subsidiary to be treated as an associate and equity accounting applied. 
C)  The results of the subsidiary for the period of time that it was controlled should be included in the consolidated accounts. 
D)  The investment to be reported at cost and dividends be accrued when declared. 
E)  None of the given answers. 
A)  The investment be recorded at fair market value and any gain or loss on acquisition recognised immediately in the income statement. 
B)  The subsidiary to be treated as an associate and equity accounting applied. 
C)  The results of the subsidiary for the period of time that it was controlled should be included in the consolidated accounts. 
D)  The investment to be reported at cost and dividends be accrued when declared. 
E)  None of the given answers.

Question 6

Richer Ltd is owed a material amount by Poorer Partnership.Poorer is heavily in debt to Richer Ltd,but due to an unexpected economic downturn is unable to make repayments according to schedule.The board of Richer Ltd believes that Poorer has a good chance of trading out of its current economic difficulties as its management and product are sound and the current problems stem from external factors that are expected to pass within the next 12 to 18 months.Richer Ltd enters into an arrangement with Poorer to manage its finances until the economic situation reverses.At this stage it is not perceived as necessary for Richer Ltd to be otherwise involved in the running of Poorer.Given the situation described,what is Richer Ltd most likely to be required to do to account for Poorer under AASB 127?

Accepted Answer

A)  As the control achieved is only temporary, under AASB 127 Richer would not be required to consolidate Poorer. 
B)  Richer Ltd should consolidate Poorer under AASB 127 because it has control over it by the definition of 'control' in that Standard. 
C)  Richer Ltd should not be required to consolidate Poorer as it does not have control as defined in AASB 127. 
D)  Richer Ltd does have temporary control of Poorer, but since Poorer is a partnership Richer is not required to include it in a consolidated set of financial statements. 
E)  None of the given answers. 
A)  As the control achieved is only temporary, under AASB 127 Richer would not be required to consolidate Poorer. 
B)  Richer Ltd should consolidate Poorer under AASB 127 because it has control over it by the definition of 'control' in that Standard. 
C)  Richer Ltd should not be required to consolidate Poorer as it does not have control as defined in AASB 127. 
D)  Richer Ltd does have temporary control of Poorer, but since Poorer is a partnership Richer is not required to include it in a consolidated set of financial statements. 
E)  None of the given answers.

Question 7

In the situation in which a subsidiary revalues its non-current assets to fair value in its books as part of being acquired by a parent entity,the accounting treatment is:

Accepted Answer

A)  To treat the revaluation according to AASB 116 'Property, plant and equipment' in the books of the subsidiary entity. 
B)  To create an asset revaluation reserve in the consolidated accounts and write it off against the parent entity's investment in the subsidiary. 
C)  To adjust the investment recorded by the parent entity so that the entry balances in the elimination entry. 
D)  Determined by AASB 127 'Consolidated and Separate Financial Statements', which is concerned with the treatment of the revaluation in the books of the controlled entity. It requires the adjustment to fair value to be written off to the income statement. 
E)  None of the given answers. 
A)  To treat the revaluation according to AASB 116 'Property, plant and equipment' in the books of the subsidiary entity. 
B)  To create an asset revaluation reserve in the consolidated accounts and write it off against the parent entity's investment in the subsidiary. 
C)  To adjust the investment recorded by the parent entity so that the entry balances in the elimination entry. 
D)  Determined by AASB 127 'Consolidated and Separate Financial Statements', which is concerned with the treatment of the revaluation in the books of the controlled entity. It requires the adjustment to fair value to be written off to the income statement. 
E)  None of the given answers.

Question 8

The partition effect in relation to a group of companies arose when:

Accepted Answer

A)  It was not permitted under corporations law to consolidate an entity that was not a company. This resulted not only in the non-company entity not being consolidated, but also all the entities (company or otherwise) that it controlled not being consolidated. 
B)  The minority shareholders in a number of companies controlled by a parent entity organised themselves to block the transfer of funds within a group. 
C)  Companies in a group co-ordinated to transfer assets in such a way as to protect part of the group from being taxed, thus reducing the total tax owing for the group as a whole. 
D)  Dividends were declared and paid in such a way as to manage cash reserves within a group. 
E)  None of the given answers. 
A)  It was not permitted under corporations law to consolidate an entity that was not a company. This resulted not only in the non-company entity not being consolidated, but also all the entities (company or otherwise) that it controlled not being consolidated. 
B)  The minority shareholders in a number of companies controlled by a parent entity organised themselves to block the transfer of funds within a group. 
C)  Companies in a group co-ordinated to transfer assets in such a way as to protect part of the group from being taxed, thus reducing the total tax owing for the group as a whole. 
D)  Dividends were declared and paid in such a way as to manage cash reserves within a group. 
E)  None of the given answers.

Question 9

In determining control,'potential voting rights':

Accepted Answer

A)  include those rights embedded in such instruments as share call options and share warrants. 
B)  which are currently exercisable should be taken into account. 
C)  even if they are not currently exercisable should be taken into account. 
D)  include those rights embedded in such instruments as share call options and share warrants and which are currently exercisable should be taken into account. 
E)  include those rights embedded in such instruments as share call options and share warrants, which are currently exercisable should be taken into account and C above and even if they are not currently exercisable should be taken into account. 
A)  include those rights embedded in such instruments as share call options and share warrants. 
B)  which are currently exercisable should be taken into account. 
C)  even if they are not currently exercisable should be taken into account. 
D)  include those rights embedded in such instruments as share call options and share warrants and which are currently exercisable should be taken into account. 
E)  include those rights embedded in such instruments as share call options and share warrants, which are currently exercisable should be taken into account and C above and even if they are not currently exercisable should be taken into account.

Exam 28: Accounting for Group Structures

Minority interests (minority interests)are defined as the equity in the parent company that is not provided by the group shareholders:

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):

Fresco Ltd acquires all the issued capital of Indoor Ltd for a cash payment of $1,000,000 on 30 June 2005.The balance sheet of Indoor Ltd at purchase date is: Assuming the assets of Indoor Ltd are at fair value,what is the entry to eliminate the investment in Fresco Ltd?

In the situation in which a subsidiary is only controlled temporarily,AASB 127 requires:

In the situation in which a subsidiary revalues its non-current assets to fair value in its books as part of being acquired by a parent entity,the accounting treatment is:

The partition effect in relation to a group of companies arose when:

In determining control,'potential voting rights':

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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