Question 1

Variable returns from an investee include:

Accepted Answer

A)  dividends from ordinary shares that will change based on the profit performance of the investee 
B)  fixed interest payments from a bond, as they expose the investor to the credit risk of the issuer of the bond, namely the investee 
C)  fixed performance fees for management of the investee's assets, as they expose the investor to the performance risk of the investee. 
D)  all of the options are correct. 
A)  dividends from ordinary shares that will change based on the profit performance of the investee 
B)  fixed interest payments from a bond, as they expose the investor to the credit risk of the issuer of the bond, namely the investee 
C)  fixed performance fees for management of the investee's assets, as they expose the investor to the performance risk of the investee. 
D)  all of the options are correct.

Question 2

According to paragraph 10 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities, an entity shall disclose information that enables users of its consolidated financial statements to understand:

Accepted Answer

A)  the composition of the group. 
B)  the interest that the subsidiaries have in the group's activities and cash flows. 
C)  the interest that non-controlling interests have in the group's activities and cash flows. 
D)  the composition of the group and the interest that non-controlling interests have in the group's activities and cash flows. 
A)  the composition of the group. 
B)  the interest that the subsidiaries have in the group's activities and cash flows. 
C)  the interest that non-controlling interests have in the group's activities and cash flows. 
D)  the composition of the group and the interest that non-controlling interests have in the group's activities and cash flows.

Question 3

In determining the existence of power, together with size of the investor's voting interest, the following factors need to be examined in relation to the holders of the other shares in the investee:

Accepted Answer

A)  attendance at annual general meetings. 
B)  level of dilution and disorganization or apathy of the remaining shareholders. 
C)  the existence of contracts. 
D)  all of the options are correct. 
A)  attendance at annual general meetings. 
B)  level of dilution and disorganization or apathy of the remaining shareholders. 
C)  the existence of contracts. 
D)  all of the options are correct.

Question 4

In a consolidated group of entities, control over the subsidiaries in the group:

Accepted Answer

A)  may not be shared control. 
B)  can be shared with other entities. 
C)  requires 100% ownership of the subsidiaries' shares. 
D)  can exist where the rights are purely protective rights. 
A)  may not be shared control. 
B)  can be shared with other entities. 
C)  requires 100% ownership of the subsidiaries' shares. 
D)  can exist where the rights are purely protective rights.

Question 5

The consolidated financial statements reflect the effects of transactions:

Accepted Answer

A)  between internal parties to the group only. 
B)  with external parties to the group only. 
C)  both between internal parties and with external parties to the group. 
D)  with some internal and external parties to the group. 
A)  between internal parties to the group only. 
B)  with external parties to the group only. 
C)  both between internal parties and with external parties to the group. 
D)  with some internal and external parties to the group.

Question 6

A subsidiary is an entity that:

Accepted Answer

A)  has significant influence over a parent entity. 
B)  exercises control over a parent entity. 
C)  has the power to control a parent entity. 
D)  is controlled by another entity. 
A)  has significant influence over a parent entity. 
B)  exercises control over a parent entity. 
C)  has the power to control a parent entity. 
D)  is controlled by another entity.

Question 7

Eastpac Bank has lent Alexandra Ltd $500 000. Part of the loan contract prevents Alexandra from borrowing money in the future from other banks without the permission of Eastpac. As a result of this relationship:

Accepted Answer

A)  Eastpac Bank is regarded as a parent entity of Alexandra Limited. 
B)  Alexandra Limited is regarded as a subsidiary of Eastpac Bank. 
C)  a parent-subsidiary relationship does not exist between these two parties. 
D)  a parent-subsidiary relationship is regarded as existing between these two parties as Eastpac Bank is able to direct the relevant activities of Alexandra Limited. 
A)  Eastpac Bank is regarded as a parent entity of Alexandra Limited. 
B)  Alexandra Limited is regarded as a subsidiary of Eastpac Bank. 
C)  a parent-subsidiary relationship does not exist between these two parties. 
D)  a parent-subsidiary relationship is regarded as existing between these two parties as Eastpac Bank is able to direct the relevant activities of Alexandra Limited.

Question 8

With regards to the concept on control, power over an investee:

Accepted Answer

A)  is related to relevant activities of the investee. 
B)  arises from potential rights. 
C)  means actually directing the investee. 
D)  means the ability to significantly influence the investee. 
A)  is related to relevant activities of the investee. 
B)  arises from potential rights. 
C)  means actually directing the investee. 
D)  means the ability to significantly influence the investee.

Question 9

A group of entities comprised of Kerri Limited (parent entity), Georgia Limited (subsidiary entity) and Emily Limited (subsidiary entity) have the following inventories balances.
 
Which of the following amounts is shown as the consolidated inventories balance in the consolidated financial statements?

Accepted Answer

A)  $12 000. 
B)  $14 000. 
C)  $26 000. 
D)  $67 000. 
A)  $12 000. 
B)  $14 000. 
C)  $26 000. 
D)  $67 000.

Question 10

The reasons for the preparation of consolidated financial statements include which of the following?

Accepted Answer

A)  Reporting of risks and benefits of the group as a single economic entity. 
B)  Allowing comparison of the group with similar entities. 
C)  Supply of relevant information to investors in the parent entity. 
D)  All of the options are correct. 
A)  Reporting of risks and benefits of the group as a single economic entity. 
B)  Allowing comparison of the group with similar entities. 
C)  Supply of relevant information to investors in the parent entity. 
D)  All of the options are correct.

Question 11

Paragraph 9 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities provides the following examples of situations where it is necessary to disclose significant judgements and assumptions in relation to subsidiaries

Accepted Answer

A)  where an entity does not control another entity but it holds more than half of the voting rights in the other entity. 
B)  where an entity controls another entity but it holds less than half of the voting rights of the other entity. 
C)  where an entity is an agent or a principal. 
D)  all of the options are correct. 
A)  where an entity does not control another entity but it holds more than half of the voting rights in the other entity. 
B)  where an entity controls another entity but it holds less than half of the voting rights of the other entity. 
C)  where an entity is an agent or a principal. 
D)  all of the options are correct.

Question 12

Which of the following is not one of the three elements of control according to AASB 10/IFRS 10 Consolidated Financial Statements?

Accepted Answer

A)  The ability to use power over the investee to affect the amount of the investor's returns. 
B)  Dominating the decision making of the investee. 
C)  Power over the investee. 
D)  Exposure, or rights, to variable returns from involvement with the investee. 
A)  The ability to use power over the investee to affect the amount of the investor's returns. 
B)  Dominating the decision making of the investee. 
C)  Power over the investee. 
D)  Exposure, or rights, to variable returns from involvement with the investee.

Question 13

An additional set of financial statements that combines the separate sets of financial statements for all entities within an economic entity is known as:

Accepted Answer

A)  a concise financial report. 
B)  a condensed financial report. 
C)  consolidated financial statements. 
D)  combined financial statements. 
A)  a concise financial report. 
B)  a condensed financial report. 
C)  consolidated financial statements. 
D)  combined financial statements.

Question 14

In the context of control, which of the following is correct regarding rights?

Accepted Answer

A)  They must be protective rights. 
B)  They must arise from a legal contract. 
C)  They must arise as a result of future events. 
D)  They must be substantive rights. 
A)  They must be protective rights. 
B)  They must arise from a legal contract. 
C)  They must arise as a result of future events. 
D)  They must be substantive rights.

Question 15

When one entity controls another entity, the business combination results in which of the following types of relationship?

Accepted Answer

A)  Investor-investee. 
B)  Parent-subsidiary. 
C)  Investor-associate. 
D)  Parent-child. 
A)  Investor-investee. 
B)  Parent-subsidiary. 
C)  Investor-associate. 
D)  Parent-child.

Question 16

Paragraph B23 of AASB 10/IFRS 10 Consolidated Financial Statements provides some factors to consider in assessing whether the rights over an investee are substantive:

Accepted Answer

A)  whether there are any barriers that prevent the investor from exercising them. 
B)  whether the party or parties that hold the rights would benefit from the exercise of those rights. 
C)  where more than one party is involved, whether there is a mechanism in place to enable those parties to practically exercise them. 
D)  all of the options are correct. 
A)  whether there are any barriers that prevent the investor from exercising them. 
B)  whether the party or parties that hold the rights would benefit from the exercise of those rights. 
C)  where more than one party is involved, whether there is a mechanism in place to enable those parties to practically exercise them. 
D)  all of the options are correct.

Question 17

The disclosure requirements in consolidated financial statements are included in the following accounting standards:

Accepted Answer

A)  AASB 10/IFRS 10 Consolidated Financial Statements. 
B)  AASB 12/IFRS 12 Disclosure of Interests in Other Entities. 
C)  AASB 127/IAS 127 Separate Financial Statements. 
D)  AASB 10/IFRS 10 Consolidated Financial Statements and AASB 12/IFRS 12 Disclosure of Interests in Other Entities. 
A)  AASB 10/IFRS 10 Consolidated Financial Statements. 
B)  AASB 12/IFRS 12 Disclosure of Interests in Other Entities. 
C)  AASB 127/IAS 127 Separate Financial Statements. 
D)  AASB 10/IFRS 10 Consolidated Financial Statements and AASB 12/IFRS 12 Disclosure of Interests in Other Entities.

Question 18

Rights to variable returns from an investee include:

Accepted Answer

A)  from economies of scale. 
B)  remuneration from provision of services. 
C)  returns from denying or regulating access to a subsidiary's assets. 
D)  all of the options are correct. 
A)  from economies of scale. 
B)  remuneration from provision of services. 
C)  returns from denying or regulating access to a subsidiary's assets. 
D)  all of the options are correct.

Question 19

The process of preparing the combined financial statements of a group of entities is known as:

Accepted Answer

A)  aggregation. 
B)  combination. 
C)  consolidation. 
D)  accumulation. 
A)  aggregation. 
B)  combination. 
C)  consolidation. 
D)  accumulation.

Question 20

Juliet Ltd is a listed public company and has an 60% controlling interest in Marley Pty Ltd. Marley Pty Ltd is the parent of Butterscotch Pty Ltd. In which of the following situations will Marley Pty Ltd not be required to prepare consolidated financial statements?

Accepted Answer

A)  If Marley Pty Ltd prepares separate financial statements that comply with IFRS. 
B)  If the other owners of Marley Pty Ltd have consented to the non-preparation of consolidated financial statements. 
C)  Where it is likely that there are external users dependant on the information. 
D)  Marley Pty Ltd would never be required to prepare consolidated financial statements. 
A)  If Marley Pty Ltd prepares separate financial statements that comply with IFRS. 
B)  If the other owners of Marley Pty Ltd have consented to the non-preparation of consolidated financial statements. 
C)  Where it is likely that there are external users dependant on the information. 
D)  Marley Pty Ltd would never be required to prepare consolidated financial statements.

Exam 26: Consolidation: Controlled Entities

Variable returns from an investee include:

According to paragraph 10 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities, an entity shall disclose information that enables users of its consolidated financial statements to understand:

In determining the existence of power, together with size of the investor's voting interest, the following factors need to be examined in relation to the holders of the other shares in the investee:

In a consolidated group of entities, control over the subsidiaries in the group:

The consolidated financial statements reflect the effects of transactions:

A subsidiary is an entity that:

Eastpac Bank has lent Alexandra Ltd $500 000. Part of the loan contract prevents Alexandra from borrowing money in the future from other banks without the permission of Eastpac. As a result of this relationship:

With regards to the concept on control, power over an investee:

The reasons for the preparation of consolidated financial statements include which of the following?

Paragraph 9 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities provides the following examples of situations where it is necessary to disclose significant judgements and assumptions in relation to subsidiaries

Which of the following is not one of the three elements of control according to AASB 10/IFRS 10 Consolidated Financial Statements?

An additional set of financial statements that combines the separate sets of financial statements for all entities within an economic entity is known as:

In the context of control, which of the following is correct regarding rights?

When one entity controls another entity, the business combination results in which of the following types of relationship?

Paragraph B23 of AASB 10/IFRS 10 Consolidated Financial Statements provides some factors to consider in assessing whether the rights over an investee are substantive:

The disclosure requirements in consolidated financial statements are included in the following accounting standards:

Rights to variable returns from an investee include:

The process of preparing the combined financial statements of a group of entities is known as:

Juliet Ltd is a listed public company and has an 60% controlling interest in Marley Pty Ltd. Marley Pty Ltd is the parent of Butterscotch Pty Ltd. In which of the following situations will Marley Pty Ltd not be required to prepare consolidated financial statements?

Accounting Regulation and the Conceptual Framework

Application of Accounting Theory

Fair Value Measurement

Inventories

Property, Plant and Equipment

Intangible Assets

Impairment of Assets

Provisions, Contingent Liabilities and Contingent Assets

Employee Benefits

Leases

Financial Instruments

Income Taxes

Share Capital and Reserves

Share-Based Payment

Revenue

Presentation of Financial Statements

Statement of Cash Flows

Accounting Policies and Other Disclosures

Earnings Per Share

Operating Segments

Related Party Disclosures

Sustainability and Corporate Social Responsibility Reporting

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Foreign Currency Financial Statements

Business Combinations

Consolidation: Wholly Owned Entities

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Joint Arrangements

Insolvency and Liquidation

Accounting for Mineral Resources

Agriculture

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