Question 1

There is no limit to the amount of impairment loss write down of the assets of a cash generating unit (CGU)

Accepted Answer

A) True 
 B)False  False

Question 2

Totals and subtotals in a consolidation worksheet are derived by adding/subtracting down the group column.

Accepted Answer

A) True 
 B)False  True

Question 3

Explain why dividends paid by subsidiaries out of pre-acquisition profits will result in impairment of the parent company's investment in subsidiary asset.

Accepted Answer

Dividends paid by subsidiaries:
- Where a subsidiary pays a dividend it must be treated as revenue (previously dividends paid out of pre acquisition profits were treated as a reduction in the cost of the investment)
- AASB136 now requires the investment in subsidiary to be tested for impairment when a dividend is paid and it is expected to result in impairment
- Recording an impairment loss resulting from a payment of a dividend out of pre acquisition profits will have the same effect as the previous treatment of such dividends as a reduction in the cost of the investment

Question 4

When a dividend declared by a subsidiary results in an adjustment for impairment of the parent company investment in subsidiary asset,the following consolidation worksheet adjustment is required:

Accepted Answer

A)  DR Impairment loss Investment in Subsidiary CR Accum. Impairment Loss 
B)  DR Accum Impairment Loss CR Impairment Loss Investment in Subsidiary 
C)  DR Impairment Loss Investment in Subsidiary CR Investment in Subsidiary 
D)  none of the above 
A)  DR Impairment loss Investment in Subsidiary CR Accum. Impairment Loss 
B)  DR Accum Impairment Loss CR Impairment Loss Investment in Subsidiary 
C)  DR Impairment Loss Investment in Subsidiary CR Investment in Subsidiary 
D)  none of the above

Question 5

The investment date and the acquisition date of a subsidiary will always be the same.

Accepted Answer

A) True 
 B)False

Question 6

During August 20X5,Tiberius Ltd acquired the share capital of Capri Ltd in exchange for 1,000,000 shares in Tiberius Ltd with a fair value of $10 per share.Share issue costs amounted to $400,000.Tiberius Ltd also took over the loan payable by Capri Ltd to Ethereal Finance Ltd of $2,000,000.The cost of the investment is:

Accepted Answer

A)  $10,000,000 
B)  $10,300,000 
C)  $12,000,000 
D)  None of the above. 
A)  $10,000,000 
B)  $10,300,000 
C)  $12,000,000 
D)  None of the above.

Question 7

Changes in fair value of contingent consideration in a business combination will affect the calculation of goodwill/gain on bargain purchase

Accepted Answer

A) True 
 B)False

Question 8

In a consolidation it would be double counting to record the net assets of a subsidiary and the parent company's investment in subsidiary asset

Accepted Answer

A) True 
 B)False

Question 9

Assume the same data as in Question 17.In preparing the consolidated financial statements in the year ended June 30 20X6,the consolidation adjustment to eliminate the investment in the subsidiary would be:

Accepted Answer

A)    
B)    
C)   
D)  None of the above 
A)    
B)    
C)   
D)  None of the above

Question 10

The investment elimination entry to eliminate the investment in subsidiary asset is a 'standing consolidation worksheet adjustment' and will not alter from year to year.

Accepted Answer

A) True 
 B)False

Question 11

A company adopting the replaceable rules included in the Corporations Act announces a dividend to be paid after balance date.The company:

Accepted Answer

A)  must recognise a liability in its financial statements 
B)  must not recognise a liability 
C)  has the choice of whether to recognise a liability or not 
D)  none of the above 
A)  must recognise a liability in its financial statements 
B)  must not recognise a liability 
C)  has the choice of whether to recognise a liability or not 
D)  none of the above

Question 12

All consolidation adjusting entries must be repeated in subsequent accounting periods

Accepted Answer

A) True 
 B)False

Question 13

Goodwill is not an identifiable intangible asset because it is not separable.

Accepted Answer

A) True 
 B)False

Question 14

Post acquisition changes in the composition of pre acquisition equity can be ignored for the purposes of consolidation adjustments

Accepted Answer

A) True 
 B)False

Question 15

In August 20X6,Caesar Ltd acquired the issued ordinary shares of Alesia Ltd in a one-for-one share exchange.Immediately prior to the acquisition,the shares of Caesar Ltd and Alesia Ltd were being traded on the ASX for $12 and $10 per share respectively.Immediately following the offer to purchase the shares,the shares in Alesia Ltd were being traded at $13 per share.From this information,the cost of acquisition would be recorded at:

Accepted Answer

A)  $12 per share since this the market assessment of the fair value of the shares issued by Caesar Ltd. 
B)  $10 per share since this is the fair value of the shares of Alesia Ltd and thus a reliable measure of the fair value of the shares issued by Caesar Ltd. 
C)  $13 per share since the shareholders of Alesia Ltd have a choice between accepting the offer of Caesar Ltd or selling their shares in the market, so that $13 per share is the most objective measure of the fair value of the shares in Caesar Ltd. 
D)  None of the above. 
A)  $12 per share since this the market assessment of the fair value of the shares issued by Caesar Ltd. 
B)  $10 per share since this is the fair value of the shares of Alesia Ltd and thus a reliable measure of the fair value of the shares issued by Caesar Ltd. 
C)  $13 per share since the shareholders of Alesia Ltd have a choice between accepting the offer of Caesar Ltd or selling their shares in the market, so that $13 per share is the most objective measure of the fair value of the shares in Caesar Ltd. 
D)  None of the above.

Question 16

Goodwill on acquisition is recorded when:

Accepted Answer

A)  the cost of the acquisition of the subsidiary is less than the fair value of the subsidiary equity 
B)  the cost of the acquisition is more than the fair value of the subsidiary equity 
C)  the cost of the acquisition is equal to the fair value of the subsidiary equity 
D)  none of the above 
A)  the cost of the acquisition of the subsidiary is less than the fair value of the subsidiary equity 
B)  the cost of the acquisition is more than the fair value of the subsidiary equity 
C)  the cost of the acquisition is equal to the fair value of the subsidiary equity 
D)  none of the above

Question 17

During August 20X5,Atticus Ltd acquired the share capital of Finch Pty Ltd in exchange for 1,000,000 shares in Atticus Ltd with a fair value of $10 per share.Share issue costs amounted to $400,000 and an amount of $400,000 was paid to consultants.Atticus Ltd also took over the loans payable to the shareholders of Finch Pty Ltd by that company of $2,000,000.The cost of the investment is:

Accepted Answer

A)  $12,400,000 
B)  $ 8,400,000 
C)  $12,800,000 
D)  None of the above. 
A)  $12,400,000 
B)  $ 8,400,000 
C)  $12,800,000 
D)  None of the above.

Question 18

A gain on bargain purchase will be recognised in the financial statements of the acquiring company in a business combination relating to the acquisition of a controlling interest in a company.

Accepted Answer

A) True 
 B)False

Question 19

It is important to distinguish between pre and post acquisition equity of a subsidiary to allow:

Accepted Answer

A)  post acquisition equity to be eliminated on consolidation 
B)  goodwill or gain on bargain purchase to be calculated 
C)  avoidance of double counting of pre acquisition equity 
D)  none of the above 
A)  post acquisition equity to be eliminated on consolidation 
B)  goodwill or gain on bargain purchase to be calculated 
C)  avoidance of double counting of pre acquisition equity 
D)  none of the above

Question 20

On July 1 20X5,Helios Ltd acquired all of the share capital of Havers Pty Ltd (100,000 shares)for $10 per share.During the year ended June 30 20X6,Helios Ltd received a dividend from Havers Ltd of $60,000; a dividend which had been declared by the directors of Havers Ltd in the year ended June 30 20X5 and was not subject to ratification by the shareholders of Havers Ltd.During the year ended June 30 20X6,Helios Ltd received an interim dividend of $40,000 from Havers Ltd and the directors of Havers Ltd declared a final dividend of $60,000.At June 30 20X6,The directors estimated that the fair value of the shares in Havers Ltd was only $9 per share at that date,but the estimated fall in value was considered to be only temporary and the carrying amount of the investment had not been impaired. At the date of acquisition,July 1 20X5,the shareholders' equity of Havers Ltd was (amounts in thousands):
  At the date of acquisition,the carrying amounts of the net assets of Havers Ltd approximated fair value.If a consolidated balance sheet were to be prepared for Helios Ltd and its subsidiaries at the date of acquisition,the consolidation adjustment to eliminate the investment in the subsidiary would be:

Accepted Answer

A)   
B)   
C)    
D)  None of the above 
A)   
B)   
C)    
D)  None of the above

There is no limit to the amount of impairment loss write down of the assets of a cash generating unit (CGU)

Totals and subtotals in a consolidation worksheet are derived by adding/subtracting down the group column.

Explain why dividends paid by subsidiaries out of pre-acquisition profits will result in impairment of the parent company's investment in subsidiary asset.

When a dividend declared by a subsidiary results in an adjustment for impairment of the parent company investment in subsidiary asset,the following consolidation worksheet adjustment is required:

The investment date and the acquisition date of a subsidiary will always be the same.

Changes in fair value of contingent consideration in a business combination will affect the calculation of goodwill/gain on bargain purchase

In a consolidation it would be double counting to record the net assets of a subsidiary and the parent company's investment in subsidiary asset

Assume the same data as in Question 17.In preparing the consolidated financial statements in the year ended June 30 20X6,the consolidation adjustment to eliminate the investment in the subsidiary would be:

The investment elimination entry to eliminate the investment in subsidiary asset is a 'standing consolidation worksheet adjustment' and will not alter from year to year.

A company adopting the replaceable rules included in the Corporations Act announces a dividend to be paid after balance date.The company:

All consolidation adjusting entries must be repeated in subsequent accounting periods

Goodwill is not an identifiable intangible asset because it is not separable.

Post acquisition changes in the composition of pre acquisition equity can be ignored for the purposes of consolidation adjustments

Goodwill on acquisition is recorded when:

A gain on bargain purchase will be recognised in the financial statements of the acquiring company in a business combination relating to the acquisition of a controlling interest in a company.

It is important to distinguish between pre and post acquisition equity of a subsidiary to allow:

Text Objectives and Introduction to 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

Exam 2: Principles of Consolidation

There is no limit to the amount of impairment loss write down of the assets of a cash generating unit (CGU)

Totals and subtotals in a consolidation worksheet are derived by adding/subtracting down the group column.

Explain why dividends paid by subsidiaries out of pre-acquisition profits will result in impairment of the parent company's investment in subsidiary asset.

When a dividend declared by a subsidiary results in an adjustment for impairment of the parent company investment in subsidiary asset,the following consolidation worksheet adjustment is required:

The investment date and the acquisition date of a subsidiary will always be the same.

Changes in fair value of contingent consideration in a business combination will affect the calculation of goodwill/gain on bargain purchase

In a consolidation it would be double counting to record the net assets of a subsidiary and the parent company's investment in subsidiary asset

Assume the same data as in Question 17.In preparing the consolidated financial statements in the year ended June 30 20X6,the consolidation adjustment to eliminate the investment in the subsidiary would be:

The investment elimination entry to eliminate the investment in subsidiary asset is a 'standing consolidation worksheet adjustment' and will not alter from year to year.

A company adopting the replaceable rules included in the Corporations Act announces a dividend to be paid after balance date.The company:

All consolidation adjusting entries must be repeated in subsequent accounting periods

Goodwill is not an identifiable intangible asset because it is not separable.

Post acquisition changes in the composition of pre acquisition equity can be ignored for the purposes of consolidation adjustments

Goodwill on acquisition is recorded when:

A gain on bargain purchase will be recognised in the financial statements of the acquiring company in a business combination relating to the acquisition of a controlling interest in a company.

It is important to distinguish between pre and post acquisition equity of a subsidiary to allow:

Text Objectives and Introduction to 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