Exam 2: Principles of Consolidation

During August 20X5,Tiberius Ltd acquired the issued 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:

In a business combination.share issue costs are not included as part of the cost of acquisition.

One purpose of the consolidation worksheet is to eliminate the effect of intragroup dividends.

Dividends payable by a subsidiary on an ex-dividend basis will be ignored for the purposes of consolidation.

Any goodwill arising on a business combination is required to be tested at least annually for impairment.This requirement arises from the operation of:

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

During June 20X5,Cassius Ltd acquired all the issued capital of Cicero Ltd in exchange for 1,000,000 shares with a market value of $10 per share,$5 000 000 cash payable on June 30 20X5 plus a further $6 050 000 payable on June 30 20X7.Assume an interest rate of 10%.A consultation fee of $1 000 000 was paid to an independent firm for their assistance in the acquisition.A special department was set up in Cassius Ltd to oversee the acquisition and the estimated costs of this department that were reliably attributable to the acquisition amounted to $300 000.The cost of acquisition was (rounded to the nearest $1 000):

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

All consolidation adjusting entries must be repeated in subsequent accounting periods.

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

Where a subsidiary has declared but not paid a dividend on a cum-dividend basis on acquisition date,the amount of the dividend must be recorded by the parent company as:

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

Explain the consequences of distinguishing between pre-acquisition and post-acquisition equity of a subsidiary in the consolidation process.

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

Discuss the changes in the accounting rules for recognition of liabilities for dividends payable after 1 January 2005.

A dividend paid by a subsidiary out of pre-acquisition profits will always result in the parent company's investment in subsidiary asset being impaired.

Explain why the existence of goodwill enables an entity to generate higher future cash flows or profits than would otherwise occur.

Which item is eliminated when preparing a consolidated worksheet?

The declaration date of a dividend determines whether it will be recorded as a liability in the financial statements.

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.