FA-FFA Module-9

1. IAS 27 defines consolidated financial statements as ‘the financial statements of a group presented as those of:

2. The objective of IAS 27 is to prescribe the accounting and disclosure requirements for investments in __________ when an entity prepares separate financial statements.

3. IAS 27 mandates which entities shall produce separate financial statements.

4. Consolidated financial statements are the financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented __________.

5. Separate financial statements are those presented by an entity in which the entity could elect, subject to the requirements of IAS 27, to account for its investments in subsidiaries, joint ventures and associates __________.

6. The financial statements of an entity that does not have a subsidiary, associate or joint venturer’s interest in a joint venture are not separate financial statements.

7. Which of the following statements is not true with regards to a parent that becomes an investment entity?

8. Dividends from a subsidiary, a joint venture or an associate are recognised in profit or loss unless the entity elects to use the __________, in which case the dividend is recognised as a reduction from the carrying amount of the investment.

9. Which of the following criteria shall be satisfied when a parent reorganises the structure of its group by establishing a new entity as its parent?

10. At the date of initial application, an investment entity that previously measured its investment in a subsidiary at cost shall instead measure that investment at fair value through profit or loss as if the requirements of this IFRS had always been effective.

11. At the date of initial application, an investment entity that previously measured its investment in a subsidiary at __________ through other comprehensive income shall continue to measure that investment at__________.

12. The cumulative amount of any fair value adjustment previously recognised in __________ shall be transferred to __________ at the beginning of the annual period immediately preceding the date of initial application.

13. At the date of initial application, an investment entity __________ make adjustments to the previous accounting for an interest in a subsidiary __________ it had previously elected to measure at fair value through profit or loss in accordance with IFRS 9.

14. If an investment entity has disposed of, or lost control of, an investment in a subsidiary before the date of initial application of the Investment Entities amendments, the investment entity is required to make adjustments to the previous accounting for that investment.

15. When an entity prepares separate financial statements, investments in subsidiaries, associates, and jointly controlled entities are accounted for either:

16. The entity applies the same accounting for each category of investments.

17. The proposed change to IAS 27 will align the accounting principles across boundaries but some respondents feel that the use of the equity method in separate financial statements is inappropriate because the proposed amendment lacks a conceptual basis. What is the basis of the argument from respondents opposing the introduction of the equity method?

18. Originally, equity accounting was used as a consolidation technique for subsidiaries at a time when it was thought that acquisition accounting was inappropriate. Why was acquisition accounting originally thought to be inappropriate?

19. IAS 27 Separate Financial Statements does not currently permit equity accounting as an option for investments in separate financial statements. The IASB has been asked to restore this option and to this end, an exposure draft was issued in December 2013 entitled Equity Method in Separate Financial Statements (Proposed amendments to IAS 27). Why does the IASB wish to restore this option?

20. There is some doubt about the objective of separate financial statements. IAS 27 points out that the focus of such statements is on the financial performance of the assets as investments. In what circumstances are separate financial statements required?

21. In relation to goodwill arising from a business combination, which one of the following statements is in accordance with IFRS 3 Business Combinations?

22. Which one of the following statements is not a key feature of the acquisition method?

25. On the acquisition of a subsidiary, purchased goodwill should

26. Which of the following does not result in a business combination for Pryor Ltd.?

27. According to a survey of CFOs, what is the main reason for mergers?

28. Which of the following acquisition-related costs are not expensed in the period incurred?

29. In acquiring Au Ltd., Trinh Ltd. included a provision for contingent consideration. The value of this consideration will be determined by an event that will occur after the acquisition date. How should the recognition of the amount of the contingency be accounted for?

30. Which of the following is not a classification for intangible assets under IFRS 3?

31. Which of the following is not an acceptable method for valuing intangible assets?

32. Where a transaction or other event does not meet the definition of a business combination due to the acquiree not meeting the definition of a business, it is termed an ‘asset acquisition’. From the given situation you need to identify the correct accounting treatment under ‘asset acquisition’ and ‘Business combination’: Recognition of identifiable assets and liabilities-

33. Company A purchased 100% interest of Company B. Company B is being sued over a personal injury allegedly caused by a faulty product. The claimant is suing for CU1 million in damages. The acquiree’s management acknowledge that the product was faulty and may have caused injury. However, they strongly dispute the level of damages being claimed. The acquiree’s legal advisers estimate such claims are usually settled for between 100,000 and 250,000.

34. As per Appendix C, of IFRS 3, Business Combinations, in case of common control business combinations, the assets and liabilities of the combining entities are reflected at their carrying amounts. A Ltd. has two subsidiaries B Ltd. and C Ltd. One fine morning B Ltd merges with C Ltd. How the assets and liabilities will appear in the separate financial statements of C Ltd:

35. When would it be more advantageous for a purchaser to acquire a company’s assets rather than its shares?

36. Lang Ltd. acquired 100% of Linford Ltd. through a direct exchange. In the exchange, Lang issued $7,500,000 in shares to Linford. What journal entry must Lang record to reflect the exchange?

37. Lang Ltd. acquired 100% of Linford Ltd. through a direct exchange. In the exchange, Lang issued $7,500,000 in shares to Linford. What journal entry must Linford record to reflect the exchange?

38. Under IAS 16, under what circumstances can the revaluation model be used to measure property, plant, and equipment (PPE)?

39. Kora Co., a public enterprise, is a subsidiary of Bentel Ltd., a private enterprise. Bentel has chosen to report Kora using the equity method. In doing so what information must Bentel disclose in its notes to the financial statements?

40. Rossy Ltd. acquired 100% of Zia ltd. in 20X3. At the acquisition date, the following appeared under the Property, Plant, and Equipment sections of the respective separate-entity statements of financial position: Rossy Zia Equipment 1,000,000 500,000 Accumulated depreciation (350,000) (100,000) At the acquisition date, Zia’s equipment has a fair value of $425,000. What is the balance of the accumulated depreciation on Rossy’s consolidated statement of financial position at the acquisition date?

41. Gibson Ltd. has investments in a number of businesses. Each of the investments is individually immaterial. How should IFRS 3 disclosures be made for these investments?

42. Boyce Ltd. made an investment in a joint venture. After properly making an allocation for a fair value adjustment, there was $25,000 remaining. How should this $25,000 be reported?

43. IFRS 3:

44. Under IFRS 3, acquired contingent liabilities are:

45. Goodwill should be:

46. Negative goodwill should be:

47. The result of nearly all combinations is that the:

48. A combination may involve:
(i) The purchase of the equity of another undertaking.
(ii) The purchase of all the net assets of another undertaking.
(iii) The assumption of the liabilities of another undertaking.
(iv) The purchase of some of the net assets of another undertaking, that together form one or more businesses.
(v) The purchase of assets from a firm in liquidation.

49. Applying the acquisition method involves the following steps:
i Identifying an acquirer.
ii Measuring the cost of the combination.
iii Allocating, at the acquisition date, the cost of the combination to the assets acquired and liabilities and contingent liabilities assumed.
iv Amortising the goodwill.

50. Control is the power:

51. To identify an acquirer, indications that one exists are:.
i If the fair value of one of the undertakings is greater than that of the other, the greater is likely to be the acquirer.

ii If the combination is effected through an exchange of voting ordinary equity instruments for cash or other assets, the undertaking giving up cash or other assets is likely to be the acquirer.

iii If the combination results in the management of one of the undertakings being able to run the combined undertaking, the undertaking whose management is able to dominate is likely to be the acquirer.

iv In a combination effected through an exchange of shares, the undertaking that issues the shares is normally the acquirer.

v In a combination effected through an exchange of shares, the older undertaking is normally the acquirer.

52. When a new undertaking is formed to effect a combination:

53. The cost of a combination includes:
(i) Liabilities incurred or assumed by the acquirer.
(ii) Professional fees paid to accountants.
(iii) Legal advisers’ fees.
(iv) Valuers’ fees.
(v) General administrative costs

54. Future losses are:

55. For an adjustment to the cost of the combination contingent on future events, the acquirer must include the amount of that adjustment in the cost of the combination at the acquisition date, if the adjustment is:

56. The acquirer may be required to make a subsequent payment to the seller, as compensation for a reduction in the value of the shares issued for control of the acquiree.
In such cases:

57. The acquirer must allocate the cost of a combination, by recording the acquiree’s identifiable:

(i) Assets.
(ii) Liabilities
(iii) Contingent liabilities.
(iv) Non-current assets that are as ‘held for sale’.
(v) Non-current liabilities that are as ‘held for sale’.

58. A building has a cost in the books of the acquiree of $200m. It is being depreciated over 20 years, the length of the lease. After 15 years, you buy the company and fair value the property at $400m. In the consolidated books of account, annual depreciation will be recorded as:

59. You buy a company. You have paid, have a binding agreement, but some registrations have yet to be completed before you become the legal owner.

60. Non-controlling (Minority) interest in the acquiree is stated:

61. An acquiree’s restructuring plan, whose execution is conditional upon its being acquired in a combination is:

62. A tax benefit arising from the acquiree’s tax losses that was not recorded by the acquiree:

63. The acquirer records an in-process research and development project of the acquiree, if the project meets the definition of an intangible asset and its fair value can be measured reliably:

64. The carrying amount of an item classified as an intangible asset that was acquired in a combination, if that intangible asset does not at that date meet the identifiability criterion in IAS 38, for which the agreement date was before 31 March 2004, is recorded:

65. After their initial recognition, the acquirer must measure contingent liabilities at:

66. Goodwill acquired in a combination must be:

67. To eliminate amortisation on previously-recorded goodwill:

68. To eliminate previously-recognised negative goodwill:

69. When provisional values of net assets need to be amended, the difference goes to:

70. When provisional values of net assets need to be amended, the differences will be applied:

71. Adjustments to the initial accounting for a combination, after the measurement period is complete, must be recorded:

72. A reverse acquisition is:

73. In a reverse acquisition, consolidated accounts are prepared in the name of:

74. In a reverse acquisition, the opening retained earnings are those of:

75. In a reverse acquisition, the comparative figures are those of:

76. In a reverse acquisition, the minority interests have shares in:

77. In a reverse acquisition, the company whose assets are revalued are those of:

78. ‘Small’ buys ‘Big’ in a reverse acquisition. Small had 500 shares issued prior to the merger. It then issued 10.000 shares to Big’s owners.
For calculating the EPS, the number of shares for the period prior to the merger is:

79. ‘Small’ buys ‘Big’ in a reverse acquisition. Small had 500 shares issued prior to the merger. It then issued 10.000 shares to Big’s owners. Comparative EPS figures for previous figures should use Big’s earnings for the period and divide them by:

80. On the acquisition of a subsidiary, purchased goodwill should:

85. IFRS 10 Consolidated Financial Statements sets out how to determine whether one entity has control over another entity.
Which one of the following statements is in accordance with the IFRS 10 requirements and guidance for control to exist over another entity?

86. Which one of the following statements is consistent with the principle of control as defined by FRS 10 Consolidated Financial Statements?

87. Select the correct statement with regards to intragroup balances and transactions during consolidation:

88. According to IFRS 10, the basis for consolidation is …

89. According to IFRS 10, which types of entities are defined as exceptions when consolidating particular subsidiaries?

90. Investor that holds only protective rights can have power over an investee in exceptional circumstances.

91. During an accounting period, a parent company sells goods to one of its subsidiaries for £10,000. These goods cost the parent company £6,000. At the end of the accounting period, three-quarters of the goods have been sold by the subsidiary to customers outside the group but the remaining one-quarter of the goods are still held in inventories. The adjustments required when preparing the group statement of comprehensive income are:

92. During an accounting period, a parent company sells goods to one of its subsidiaries for £200,000. This represents cost plus 25%. At the end of the accounting period, one-fifth of these goods are still held in the subsidiary’s inventories.
The cost of sales figures reported in the parent’s and the subsidiary’s financial statements are £890,000 and £530,000 respectively.

The parent company has a 60% interest in the subsidiary’s ordinary shares. The cost of sales figure that should appear in the consolidated statement of comprehensive income for the year is:

93. A parent company owns 73% of a subsidiary’s ordinary shares. The non-controlling interest in the group statement of financial position is measured at the appropriate proportion of the subsidiary’s identifiable net assets.
An impairment loss in relation to goodwill arising on consolidation should be accounted for in the group statement of comprehensive income as follows:

94. The amount of profit attributable to the non-controlling interest in a 90% subsidiary is generally equal to:

95. When preparing a set of group financial statements, the correct treatment of dividends paid by a subsidiary company to its non-controlling shareholders is to:

96. In an accounting period, a parent company has sales of £867,000 and its 80% subsidiary has sales of £121,000. The group sales figure for the period is £963,800. True or False?

97. In an accounting period, a parent company has pre-tax profits of £5m. Its 75% subsidiary has pre-tax profits of £2m. The tax expense for both companies is equal to 30% of profit before tax. The profit attributable to the non-controlling interest is:

98. If a subsidiary company is acquired part of the way through an accounting period, the group’s share of the subsidiary’s pre-acquisition profit is included in the statement of comprehensive income for the period. True or False?

99. Which of the following is an example of an intra-group item which is cancelled out when preparing the group statement of comprehensive income?

100. A parent company and its subsidiaries form a single entity for legal purposes. True or False?

101. Alpha Ltd (Alpha) owns 25 per cent of the shares (and voting rights) in Beta Ltd (Beta) but has no representation on the board of directors of the company. In accordance with IAS 28 Investments in Associates and Joint Ventures, Alpha

102. Which one of the following events would change the amount of the item ‘Investment in associate’ in a company’s consolidated financial report?

103. When an investment in an associate is acquired, the initial amount of the investment should be

104. Raven Ltd (Raven) is a parent entity that invested in an associate. In accordance with IFRS 3 Business Combinations, Raven determined that the acquisition involved a gain of $200 000. In accordance with IAS 28 Investments in Associates and Joint Ventures, the gain should be

105. An associate is an entity in which the investor has significant influence, but which is neither a subsidiary nor a joint venture of the investor. Which of the following is true regarding the definition of `significant influence`?

106. IAS 28 states that profits and losses resulting from `upstream` and `downstream` transactions between an investor including its consolidated subsidiaries and an associate or joint venture are recognised only to the extent of the unrelated investors` interests in the associate or joint venture. Upstream transactions are sales of assets from an associate to the investor and downstream transactions are sales of assets by the investor to the associate. How would unrealised gains in downstream transactions normally be treated?

107. The ED in November 2012 notes that an investor may discontinue the use of the equity method for various reasons including where the investment in the investee becomes a subsidiary or a financial asset. What does the ED propose should be the accounting treatment when an investor discontinues the use of the equity method for any reason?

108. A joint venture is a joint arrangement where the parties that have joint control, have rights to the arrangement`s net assets. How are joint ventures accounted for?

109. On initial recognition, the investment in an associate or a joint venture is recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. How is an entity’s interest in a joint venture or associate determined?

110. Under the equity method, the investment is initially recognised at cost and adjusted to recognise the investor`s share of the profit or loss and other comprehensive income of the investee. Additionally, the investment is reduced by distributions received from the investee. However, IAS 28 is silent on how to treat other changes in the net assets of the investee in the investor`s account. What have the IASB proposed in the ED issued in November 2012?

111. Johnson paid $1•2 million for a 30% investment in Treem’s equity shares on 1 August 2014. Treem’s profit after tax for the year ended 31 March 2015 was $750,000. On 31 March 2015, Treem had $300,000 goods in its inventory which it had bought from Johnson in March 2015. These had been sold by Johnson at a mark-up on cost of 20%. Treem has not paid any dividends.

On the assumption that Treem is an associate of Johnson, what would be the carrying amount of the investment in Treem in the consolidated statement of financial position of Johnson as at 31 March 2015?

112. IAS 28 shall be applied by all entities that are investors with __________ an investee.

113. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies.

114. If an entity holds, directly or indirectly, __________ of the voting power of the investee, it is presumed that the entity has significant influence, unless it can be clearly demonstrated that this is not the case.

115. Under which of the following circumstances does an entity lose significant power over the investee?

116. Which one of the following events would change the amount of the item ‘Investment in associate’ in a company’s consolidated financial report?

117. When an investment in an associate is acquired, the initial amount of the investment should be

120. In relation to goodwill arising from a business combination, which one of the following statements is in accordance with IFRS 3 Business Combinations?