Question 1

Equity investments falling within the scope of AASB 139 Financial Instruments can be measured at fair value.

Accepted Answer

A) True 
 B)False  True

Question 2

What is the application of the reporting entity concept to consolidation accounting?

Accepted Answer

Reporting entity concept:
- Definition: entity where there are users reliant on general purpose financial statements (GPFS)
- SAC 1 provides factors to be considered in determining existence of a reporting entity
- A group that is a reporting entity must prepare consolidated financial statements
- Some group structures may contain more than one reporting entity

Question 3

In AASB 3,the indicia of an acquiring entity's power to control the other combining entities in a business combination do not include the power to:

Accepted Answer

A)  Exercise more than one-half of the voting rights in another entity through the sie of the voting power or by virtue of an agreement with other investors. 
B)  Appoint or remove a majority of the members of the governing body of the acquired entities. 
C)  Cast the majority of votes at meetings of the governing body. 
D)  None of the above. 
A)  Exercise more than one-half of the voting rights in another entity through the sie of the voting power or by virtue of an agreement with other investors. 
B)  Appoint or remove a majority of the members of the governing body of the acquired entities. 
C)  Cast the majority of votes at meetings of the governing body. 
D)  None of the above. D

Question 4

A trust cannot be a subsidiary.

Accepted Answer

A) True 
 B)False

Question 5

For a company to be required to present consolidated financial statements it must be:

Accepted Answer

A)  a parent entity 
B)  a reporting entity 
C)  part of a group that is a reporting entity 
D)  Any of the above 
A)  a parent entity 
B)  a reporting entity 
C)  part of a group that is a reporting entity 
D)  Any of the above

Question 6

A reporting entity is a single entity which meets certain criteria.

Accepted Answer

A) True 
 B)False

Question 7

Discuss the potential benefits of conducting economic activity through a group structure

Accepted Answer

Potential benefits:
- Diversification -

Question 8

On July 1 20X5,Helios Ltd acquired 100,000 shares in Havers Ltd for $10 per share.The shares were acquired for trading purposes.During the year ended June 30 20X6,Helios Ltd received a fully franked dividend from Havers Ltd amounting to $60,000.The income tax rate was 30%.At June 30 20X6,the shares were quoted in the market at $9 per share,although the fall in the market price was considered to be only temporary.As a result of this investment,Helios Ltd would:

Accepted Answer

A)  Report a profit before tax from the investment of $60,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $900,000. 
B)  Report a loss before tax from the investment of $40,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $900,000. 
C)  Report a profit before tax from the investment of $60,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $1,000,000. 
D)  None of the above. 
A)  Report a profit before tax from the investment of $60,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $900,000. 
B)  Report a loss before tax from the investment of $40,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $900,000. 
C)  Report a profit before tax from the investment of $60,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $1,000,000. 
D)  None of the above.

Question 9

Cassius Ltd and Brutus Ltd agreed to merge by forming another company,Casca Ltd,which acquired all of the share capital of the two companies in a share exchange.Cassius Ltd was a much larger company than Brutus Ltd with several large equity stakeholders so that the Board of Cassius Ltd emerged from the business combination with the power to dominate the operating and financial policies of the merged entity.Based on these facts:

Accepted Answer

A)  Casca Ltd must be the acquiring entity since it acquired the share capital of Cassius Ltd and Brutus Ltd. 
B)  Cassius Ltd is the acquiring entity since its management emerges as the dominant power in the merged entity. 
C)  Neither Cassius Ltd nor Brutus Ltd can be the acquiring entity since their equity securities have been acquired by Casca Ltd. 
D)  None of the above. 
A)  Casca Ltd must be the acquiring entity since it acquired the share capital of Cassius Ltd and Brutus Ltd. 
B)  Cassius Ltd is the acquiring entity since its management emerges as the dominant power in the merged entity. 
C)  Neither Cassius Ltd nor Brutus Ltd can be the acquiring entity since their equity securities have been acquired by Casca Ltd. 
D)  None of the above.

Question 10

Assume that Scipio Ltd has a controlling interest in Africanus Ltd.As a result of this relationship:

Accepted Answer

A)  The directors of Africanus Ltd have a fiduciary duty to act in the best interests of Scipio Ltd. 
B)  Because of its controlling interest in Africanus Ltd, Scipio Ltd will take over the management of Africanus Ltd from the Board of that company. 
C)  The Board of Africanus Ltd will be dissolved as they no longer have any real power in Africanus Ltd. 
D)  None of the above. 
A)  The directors of Africanus Ltd have a fiduciary duty to act in the best interests of Scipio Ltd. 
B)  Because of its controlling interest in Africanus Ltd, Scipio Ltd will take over the management of Africanus Ltd from the Board of that company. 
C)  The Board of Africanus Ltd will be dissolved as they no longer have any real power in Africanus Ltd. 
D)  None of the above.

Question 11

If a parent entity is a reporting entity the group must also be a reporting entity.

Accepted Answer

A) True 
 B)False

Question 12

Ownership of more than 50% of the voting power will always represent control.

Accepted Answer

A) True 
 B)False

Question 13

Joint control can exist where share ownership by investing companies is not equal.

Accepted Answer

A) True 
 B)False

Question 14

Investments in associates(other than those classified as held for sale)will be measured at cost in the consolidated financial statements.

Accepted Answer

A) True 
 B)False

Question 15

If a company has control over the financial policies of another entity it is deemed to have control over the operating policies.

Accepted Answer

A) True 
 B)False

Question 16

Discuss the concepts of 'shared control' and 'joint control' in relation to the requirements of Accounting Standard AASB 127

Accepted Answer

Shared control- joint control:
- Shared

Question 17

A Ltd controls B Ltd who in turn controls C Ltd.B Ltd and the B Ltd group are not reporting entities.A Ltd is a reporting entity.Consolidated financial statements will be required to be prepared for:

Accepted Answer

A)  The A group 
B)  The B group 
C)  Both the A Group and the B Group 
D)  Not required 
A)  The A group 
B)  The B group 
C)  Both the A Group and the B Group 
D)  Not required

Question 18

Accounting Standard AASB127 applies only to the consolidated financial statements of a group.

Accepted Answer

A) True 
 B)False

Question 19

What are the major criticisms of the control criterion applied to the definition of the group?

Accepted Answer

Criticisms of control criterion:
- Lack

Question 20

In substance,investments in equity securities may be classified as:

Accepted Answer

A)  Trading investments at fair value, where increments and decrements in the fair value of the investments are recognised in the income statement. 
B)  Available for sale investments. 
C)  Equity investments in subsidiaries, associates and joint venture entities. 
D)  All of the above. 
A)  Trading investments at fair value, where increments and decrements in the fair value of the investments are recognised in the income statement. 
B)  Available for sale investments. 
C)  Equity investments in subsidiaries, associates and joint venture entities. 
D)  All of the above.

Equity investments falling within the scope of AASB 139 Financial Instruments can be measured at fair value.

What is the application of the reporting entity concept to consolidation accounting?

In AASB 3,the indicia of an acquiring entity's power to control the other combining entities in a business combination do not include the power to:

A trust cannot be a subsidiary.

For a company to be required to present consolidated financial statements it must be:

A reporting entity is a single entity which meets certain criteria.

Discuss the potential benefits of conducting economic activity through a group structure

Assume that Scipio Ltd has a controlling interest in Africanus Ltd.As a result of this relationship:

If a parent entity is a reporting entity the group must also be a reporting entity.

Ownership of more than 50% of the voting power will always represent control.

Joint control can exist where share ownership by investing companies is not equal.

Investments in associates(other than those classified as held for sale)will be measured at cost in the consolidated financial statements.

If a company has control over the financial policies of another entity it is deemed to have control over the operating policies.

Discuss the concepts of 'shared control' and 'joint control' in relation to the requirements of Accounting Standard AASB 127

A Ltd controls B Ltd who in turn controls C Ltd.B Ltd and the B Ltd group are not reporting entities.A Ltd is a reporting entity.Consolidated financial statements will be required to be prepared for:

Accounting Standard AASB127 applies only to the consolidated financial statements of a group.

What are the major criticisms of the control criterion applied to the definition of the group?

In substance,investments in equity securities may be classified as:

Principles of Consolidation

Fair Value Adjustments and Tax Effects

Intra-Group Transactions

Non-Controlling Interest

Partly-Owned Subsidiaries: Indirect Non-Controlling Interest

Consolidated Cash Flow Statements

Accounting for Joint Arrangements

Accounting for Associates and Joint Ventures: the Equity Method

Translation and Consolidation of Foreign Currency Financial Statements

Segment Reporting by Diversified Entities

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Exam 1: Text Objectives and Introduction to Consolidation

Equity investments falling within the scope of AASB 139 Financial Instruments can be measured at fair value.

What is the application of the reporting entity concept to consolidation accounting?

In AASB 3,the indicia of an acquiring entity's power to control the other combining entities in a business combination do not include the power to:

A trust cannot be a subsidiary.

For a company to be required to present consolidated financial statements it must be:

A reporting entity is a single entity which meets certain criteria.

Discuss the potential benefits of conducting economic activity through a group structure

Assume that Scipio Ltd has a controlling interest in Africanus Ltd.As a result of this relationship:

If a parent entity is a reporting entity the group must also be a reporting entity.

Ownership of more than 50% of the voting power will always represent control.

Joint control can exist where share ownership by investing companies is not equal.

Investments in associates(other than those classified as held for sale)will be measured at cost in the consolidated financial statements.

If a company has control over the financial policies of another entity it is deemed to have control over the operating policies.

Discuss the concepts of 'shared control' and 'joint control' in relation to the requirements of Accounting Standard AASB 127

A Ltd controls B Ltd who in turn controls C Ltd.B Ltd and the B Ltd group are not reporting entities.A Ltd is a reporting entity.Consolidated financial statements will be required to be prepared for:

Accounting Standard AASB127 applies only to the consolidated financial statements of a group.

What are the major criticisms of the control criterion applied to the definition of the group?

In substance,investments in equity securities may be classified as:

Principles of Consolidation

Fair Value Adjustments and Tax Effects

Intra-Group Transactions

Non-Controlling Interest

Partly-Owned Subsidiaries: Indirect Non-Controlling Interest

Consolidated Cash Flow Statements

Accounting for Joint Arrangements

Accounting for Associates and Joint Ventures: the Equity Method

Translation and Consolidation of Foreign Currency Financial Statements

Segment Reporting by Diversified Entities

Filters