Rose Ltd acquired all the equity of Jeannie Ltd on 1 July 20X3.At that time the fair value/financial position of Jeannie was as follows: \[\begin{array} { l r } \text { Capital } & \$ 500000 \\ \text { Reserves } & \$ 100000 \\ \text { Retained profits } & \$ 150000 \\ \text { Liabilities } & \$ 50000 \end{array}\] Suppose that Rose paid $500 000 for the shares in Jeanie, which of the following correctly describes the accounting procedures that will arise as a result of the business combination?

A) The Rose Group will record a goodwill asset of $250 000 on its consolidation worksheet if prepared as at 1 July 20X3 B) Rose Ltd will record an impairment expense of $250 000 in its ledger C) The Rose Group will record a bargain purchase revenue of $250 000 on its consolidation worksheet if prepared as at 1 July 20X3 D) None of the above are appropriate A) The Rose Group will record a goodwill asset of $250 000 on its consolidation worksheet if prepared as at 1 July 20X3 B) Rose Ltd will record an impairment expense of $250 000 in its ledger C) The Rose Group will record a bargain purchase revenue of $250 000 on its consolidation worksheet if prepared as at 1 July 20X3 D) None of the above are appropriate

Led Ltd acquired 100% of Zeppelin Ltd on 30 June 20X0 by paying $6 million cash and incurring $1 million legal fees.At that date the net assets of Zeppelin Ltd was as follows: \[\begin{array} { l r r } & \text { Recorded amount } & \text { Fair value } \\ \text { Total assets } & \$ 9 \text { million } & \$ 10 \text { million } \\ \text { Total liabilities } & \$ 1 \text { million } & \$ 1 \text { million } \\ \text { Net assets } & \$ 8 \text { million } & \$ 9 \text { million } \end{array}\] Total assets comprise buildings of $6 million, equipment of $3 million and accounts receivable of $1 million.All these figures are fair values.What is the recorded amount of buildings in Led group's consolidated financial statements for the year ended 30 June 20X0?

A) $6 million B) $3 million C) $2 million D) $4.66 million A) $6 million B) $3 million C) $2 million D) $4.66 million

Curiosity Ltd acquired all the issued share capital of Cat Ltd on 1 July 20X1.Cat Ltd's shareholders equity (all at fair value) at that date was as follows: \[\begin{array} { l r } & \mathbf { 0 0 0 } \mathrm { s } \\ \text { Paid up capital } &\$4500\\ \text { General reserve } & \$ 2000 \\ \text { Asset revaluation reserve } & \$ 500 \\ \text { General reserve } & \$1000 \\ \text { Retained profits } & \$ 1500 \\ \end{array}\] At 1 July 20X1, Curiosity Ltd considered Cat Ltd had unrecorded licenses with a fair value of $1 500 000.What was the cost of acquisition (the fair value of the consideration paid) incurred by Curiosity Ltd, if $500 000 of consolidation goodwill from the business combination was recognised in the consolidated financial statements prepared on 1 July 20X1?

A) $11 500 000 B) $10 500 000 C) $10 000 000 D) $9 000 000 A) $11 500 000 B) $10 500 000 C) $10 000 000 D) $9 000 000

Exam 17: Acquisition Method Introduction and Substitution

Explore all topics

'Cost of Control' is the most likely conceptual explanation for recognised goodwill, put forward by AASB 3 and other related Australian accounting standards.

(True/False)

4.8/5

(39)

Question 21

Rose Ltd acquired all the equity of Jeannie Ltd on 1 July 20X3.At that time the fair value/financial position of Jeannie was as follows: Capital \ 500000 Reserves \ 100000 Retained profits \ 150000 Liabilities \ 50000 Suppose that Rose paid $500 000 for the shares in Jeanie, which of the following correctly describes the accounting procedures that will arise as a result of the business combination?

(Multiple Choice)

4.7/5

(33)

Question 22

Led Ltd acquired 100% of Zeppelin Ltd on 30 June 20X0 by paying $6 million cash and incurring $1 million legal fees.At that date the net assets of Zeppelin Ltd was as follows: Recorded amount Fair value Total assets \ 9 million \ 10 million Total liabilities \ 1 million \ 1 million Net assets \ 8 million \ 9 million Total assets comprise buildings of $6 million, equipment of $3 million and accounts receivable of $1 million.All these figures are fair values.What is the recorded amount of buildings in Led group's consolidated financial statements for the year ended 30 June 20X0?

(Multiple Choice)

4.8/5

(38)

Question 23

Assets that can not be recognised by a subsidiary will be represented in the consolidated working papers by a data adjustment that includes a credit to fair value reserve.

(True/False)

4.9/5

(43)

Question 24

The purpose of the substitution elimination is to remove the parent's investment in the company against the subsidiary's equity amounts.

(True/False)

4.9/5

(31)

Question 25

At the control date a consolidation goodwill asset may be justified as follows: I.As an internal synergy of the acquiree II.As a synergy of the newly formed group III.As the cost of gaining control of the acquiree IV.As the result of making a bad deal.

(Multiple Choice)

4.9/5

(38)

Question 26

When the control date fair value of the identifiable net assets is included in the consolidation by means of a data adjustment, the associated tax effects are also included.

(True/False)

4.9/5

(35)

Question 27

Curiosity Ltd acquired all the issued share capital of Cat Ltd on 1 July 20X1.Cat Ltd's shareholders equity (all at fair value) at that date was as follows: Paid up capital \4 500 General reserve \ 2000 Asset revaluation reserve \ 500 General reserve \1 000 Retained profits \ 1500 At 1 July 20X1, Curiosity Ltd considered Cat Ltd had unrecorded licenses with a fair value of $1 500 000.What was the cost of acquisition (the fair value of the consideration paid) incurred by Curiosity Ltd, if $500 000 of consolidation goodwill from the business combination was recognised in the consolidated financial statements prepared on 1 July 20X1?

(Multiple Choice)

4.8/5

(34)

Question 28

Showing 21 - 28 of 28

'Cost of Control' is the most likely conceptual explanation for recognised goodwill, put forward by AASB 3 and other related Australian accounting standards.

Assets that can not be recognised by a subsidiary will be represented in the consolidated working papers by a data adjustment that includes a credit to fair value reserve.

The purpose of the substitution elimination is to remove the parent's investment in the company against the subsidiary's equity amounts.

At the control date a consolidation goodwill asset may be justified as follows: I.As an internal synergy of the acquiree II.As a synergy of the newly formed group III.As the cost of gaining control of the acquiree IV.As the result of making a bad deal.

When the control date fair value of the identifiable net assets is included in the consolidation by means of a data adjustment, the associated tax effects are also included.

Companies and Corporate Regulation

Objectives of Company Reporting, Conceptual Elements and Terminology

Forming a Company and Issuing Shares

Profits, Reserve and Distributions to Owners

Reorganisation of Share Capital

Debt Securities

Foreign Currency Transactions and an Introduction to Hedging

Advanced Asset and Liability Issues

Income Tax

Reports and Disclosures I: Overview

Reports and Disclosures Ii: the Financial Statements

Receivership and Voluntary Administration

Liquidations

External Administration Reports and Accounts

Investments in New Assets; Introduction to Business Combinations and Associates

The Corporate Group

Acquisition Method Application After Control Date

Intra-Group Transactions

Direct Non-Controlling Interest

Changes to Parent Investment in Subsidiaries

Indirect Interest

Translation of Foreign Currency Statements

Consolidated Cash Flow Statements

Equity Accounting Expanded and Joint Ventures

Segment Reporting

Filters