Exam 2: Principles of Consolidation

Under current accounting standards,a dividend declared by a subsidiary from pre-acquisition equity will be recognised by the parent company as:

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.

A subsidiary that is identified as a single cash-generating unit (CGU)has property,plant and equipment assets with a carrying amount of $100 000 and a recoverable amount of $80 000.On acquisition of the subsidiary,goodwill of $60 000 was recognised.The amount to be identified as goodwill impairment loss is:

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

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

When testing goodwill for impairment,the original goodwill recognised at the acquisition date is the starting point.

Where a subsidiary's financial reporting period ends on a different date to that of the parent company,the subsidiary must prepare additional financial statements

Where can the investment in a subsidiary be found in a group's consolidated financial statements?

On the acquisition date,the fair value of Slate's identifiable net assets was $750 000,which was represented by issued capital of $550 000 and retained earnings of $200 000.If Pristine Company paid $825 000 to acquire all of the issued shares of Slate,what amount of goodwill will be recognised by the group?

In preparing the consolidated financial statements in the year ended 30 June 20X6,the consolidation adjustment to eliminate the investment in the subsidiary would be:

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.

Consolidation worksheet adjusting entries are recorded:

For the year ended 30 June 20X6,the following financial statements were prepared for the two companies Arkle Ltd and Red Rum Ltd (amounts in thousands).At that date,the net assets of Red Rum Ltd approximated their fair value. Balance Sheets as at 30 June 20X6 Arkle RedRun Ltd Ltd Assets Sundry assets \ 10000 \ 2000 Investment in Subsidiary 2000 Total assets \ 12000 \2 000 Less liabilities 2000 500 Net assets \1 0,000 \1 500 Shareholders' equity Issued capital \ 2000 \1 000 Retained earnings 8000 500 Total shareholders' equity \1 0,000 \1 500 Income Statements for the Year ended 30 June 20X6 Arkle RedRun Ltd Ltd Sales revenue \ 20000 \ 2000 Less cost of goods sold 12000 1200 Gross profit \8 000 \8 00 Less sundry expenses 4000 100 Profit from continuing activities before tax \4 000 \8 00 Less income tax expense 1500 350 Profit for the year \2 500 \3 50 Statements of Movements in Retained Earnings Year ended June 30 20X6 Arkle RedRun Ltd Ltd Retained earnings 1 July 20X5 \ 6000 \ 400 Add profitfor the year 2500 350 Less dividend paid 500 250 Retained earnings 30 June 20X6 \8 000 \5 00 On 1 July 20X5,Arkle Ltd acquired all the issued capital for $2 250 000 cash.Immediately subsequent to acquisition,Red Rum Ltd paid a dividend of $250 000 out of retained earnings at 1 July 20X5.The goodwill paid on the investment was:

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

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:

On 1 July 20X5,Helios Ltd acquired all of the issued capital of Havers Pty Ltd (100 000 shares)for $10 per share.Immediately subsequent to acquisition,the directors of Havers Ltd declared and paid a dividend of $60 000 from the retained earnings at 30 June 20X5.During the year ended 30 June 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 the date of acquisition,1 July 20X5,the shareholders' equity of Havers Ltd was (amounts in thousands): Shareholders' equity Issued capital \2 00 Retained earnings 400 --- Total shareholders' equity \6 00 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:

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

Goodwill on acquisition is recorded when:

Any goodwill element in the cost of acquisition had not been impaired.The consolidated shareholders' equity of Arkle Ltd and its subsidiary at 30 June 20X6 is:

A parent and its subsidiary adopt different bases for measuring property plant and equipment assets.Upon consolidation,the financial statements must reflect: