Deck 1: Text Objectives and Introduction to Consolidation

Question 1

If a parent entity is a reporting entity the group must also be a reporting entity.

Answer 1

False

Question 2

If a company has control over the financial policies of another entity it is deemed to have control over the operating policies.

Answer 2

False

Question 3

Investments in associates(other than those classified as held for sale)will be measured at cost in the consolidated financial statements.

Answer 3

False

Question 4

Assume that Scipio Ltd has a controlling interest in Africanus Ltd.As a result of this relationship:

A) The directors of Africanus Ltd have a fiduciary duty to act in the best interests of Scipio Ltd.
B) Because of its controlling interest in Africanus Ltd, Scipio Ltd will take over the management of Africanus Ltd from the Board of that company.
C) The Board of Africanus Ltd will be dissolved as they no longer have any real power in Africanus Ltd.
D) None of the above.

Question 5

A subsidiary may be:

A) a company
B) a partnership
C) an individual
D) all of the above

Question 6

A Ltd controls B Ltd who in turn controls C Ltd.B Ltd and the B Ltd group are not reporting entities.A Ltd is a reporting entity.Consolidated financial statements will be required to be prepared for:

A) The A group
B) The B group
C) Both the A Group and the B Group
D) Not required

Question 7

Accounting Standard AASB127 applies only to the consolidated financial statements of a group.

Question 8

A reporting entity is a single entity which meets certain criteria.

Question 9

In the separate financial statements of a parent entity investments not classified as held for sale are accounted for:

A) at cost
B) at fair value
C) at either cost or fair value
D) not recorded

Question 10

In substance,investments in equity securities may be classified as:

A) Trading investments at fair value, where increments and decrements in the fair value of the investments are recognised in the income statement.
B) Available for sale investments.
C) Equity investments in subsidiaries, associates and joint venture entities.
D) All of the above.

Question 11

On July 1 20X5,Helios Ltd acquired 100,000 shares in Havers Ltd for $10 per share.The shares were acquired for trading purposes.During the year ended June 30 20X6,Helios Ltd received a fully franked dividend from Havers Ltd amounting to $60,000.The income tax rate was 30%.At June 30 20X6,the shares were quoted in the market at $9 per share,although the fall in the market price was considered to be only temporary.As a result of this investment,Helios Ltd would:

A) Report a profit before tax from the investment of $60,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $900,000.
B) Report a loss before tax from the investment of $40,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $900,000.
C) Report a profit before tax from the investment of $60,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $1,000,000.
D) None of the above.

Question 12

All companies must prepare 'separate financial statements'.

Question 13

A trust cannot be a subsidiary.

Question 14

For a company to be required to present consolidated financial statements it must be:

A) a parent entity
B) a reporting entity
C) part of a group that is a reporting entity
D) Any of the above

Question 15

Equity investments falling within the scope of AASB 139 Financial Instruments can be measured at fair value.

Question 16

Joint control can exist where share ownership by investing companies is not equal.

Question 17

Cassius Ltd and Brutus Ltd agreed to merge by forming another company,Casca Ltd,which acquired all of the share capital of the two companies in a share exchange.Cassius Ltd was a much larger company than Brutus Ltd with several large equity stakeholders so that the Board of Cassius Ltd emerged from the business combination with the power to dominate the operating and financial policies of the merged entity.Based on these facts:

A) Casca Ltd must be the acquiring entity since it acquired the share capital of Cassius Ltd and Brutus Ltd.
B) Cassius Ltd is the acquiring entity since its management emerges as the dominant power in the merged entity.
C) Neither Cassius Ltd nor Brutus Ltd can be the acquiring entity since their equity securities have been acquired by Casca Ltd.
D) None of the above.

Question 18

An 'extended group' includes:

A) controlled entities
B) associates
C) joint ventures
D) all the above

Question 19

In AASB 3,the indicia of an acquiring entity's power to control the other combining entities in a business combination do not include the power to:

A) Exercise more than one-half of the voting rights in another entity through the sie of the voting power or by virtue of an agreement with other investors.
B) Appoint or remove a majority of the members of the governing body of the acquired entities.
C) Cast the majority of votes at meetings of the governing body.
D) None of the above.

Question 20

Ownership of more than 50% of the voting power will always represent control.

Question 21

What are the major criticisms of the control criterion applied to the definition of the group?

Question 22

Discuss the concepts of 'shared control' and 'joint control' in relation to the requirements of Accounting Standard AASB 127

Question 23

Company B is bound by contract to sell all its output to Company A.Company A is deemed to control Company B.

Question 24

Discuss the potential benefits of conducting economic activity through a group structure

Question 25

Discuss the requirements for the preparation of 'separate financial statements' under AASB 127.

Question 26

If a parent loses control of a subsidiary during a financial year,that subsidiary's results are ignored for consolidation purposes.

Question 27

What is the application of the reporting entity concept to consolidation accounting?

Question 28

Control of a subsidiary must be actively exercised i.e.the capacity to control does not meet the definition of control.