Accounting for Business Combinations
Final Test Solutions
Course Introduction
Accounting for Business Combinations explores the principles and practices involved in the accounting treatment of mergers, acquisitions, and other forms of business combinations. This course covers topics such as the identification of business combinations, recognition and measurement of goodwill and intangible assets, consolidation of financial statements, and accounting for non-controlling interests. Students will gain an understanding of relevant international and local financial reporting standards, analyze real-world scenarios, and develop skills in preparing consolidated accounts, ensuring transparency and compliance in complex corporate structures.
Recommended Textbook
Accounting for Corporate Combinations and Associations 7th Australian Edition by Neal Arthur
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11 Chapters
368 Verified Questions
368 Flashcards
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Page 2
Chapter 1: Text Objectives and Introduction to Consolidation
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28 Verified Questions
28 Flashcards
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Sample Questions
Q1) What is the application of the reporting entity concept to consolidation accounting?
Answer: Reporting entity concept:
- Definition: entity where there are users reliant on general purpose financial statements (GPFS)
- SAC 1 provides factors to be considered in determining existence of a reporting entity
- A group that is a reporting entity must prepare consolidated financial statements
- Some group structures may contain more than one reporting entity
Q2) A subsidiary may be:
A) a company
B) a partnership
C) an individual
D) all of the above
Answer: D
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3
Chapter 2: Principles of Consolidation
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42 Flashcards
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Sample Questions
Q1) The investment elimination entry to eliminate the investment in subsidiary asset is a 'standing consolidation worksheet adjustment' and will not alter from year to year.
A)True
B)False
Answer: True
Q2) The general purpose financial statements (GPFS)of a parent entity are prepared from the viewpoint of:
A) the group
B) the parent entity
C) the subsidiary
D) the non controlling interest
Answer: A
Q3) 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
A)True
B)False
Answer: True
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Chapter 3: Fair Value Adjustments and Tax Effects
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34 Verified Questions
34 Flashcards
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Sample Questions
Q1) On consolidation a group can only offset current tax assets against current tax liabilities when the group:
A) has adopted tax consolidation
B) has no partly owned subsidiaries
C) operated wholly within Australia
D) all of the above
Answer: D
Q2) Discuss the differential treatment for tax purposes of investments in subsidiaries compared to other assets.
Answer: Tax treatment of investment in subsidiaries:
- One of the exemptions from the need to recognise deferred tax assets and liabilities arises on the initial recognition of assets and liabilities as this has no effect on accounting profit or taxable income at the time of recognition
- This exemption does not apply to investments in subsidiaries,but accounting standard AASB112 Income Taxes allows companies to ignore tax effects of temporary differences associated with the investment when certain conditions are satisfied.In particular the parent needs to be satisfied that the tax effects will not reverse in the forseeable future
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5
Chapter 4: Intra-Group Transactions
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) An impairment loss will be recognised in the group accounts when non current assets are sold at a loss on an intra-group basis when:
A) value in use is greater than carrying amount
B) value in use is less than carrying amount
C) value in use is greater than sale price
D) value in use is less than sale price
Q2) A subsidiary which is 75% owned by its parent company pays a dividend of $100,000.On consolidation the amount to be eliminated is:
A) $75,000
B) $100,000
C) $25,000
D) Not eliminated
Q3) Deferred tax assets and liabilities arising from accrual of intra-group interest on loans should be offset as a consolidation adjustment
A)True
B)False
Q4) Discuss the basis of recognition of tax effects relating to accrued revenue and expenses for such intra-group items as management fees and interest
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Chapter 5: Non-Controlling Interest
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37 Verified Questions
37 Flashcards
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Sample Questions
Q1) Using the fair value (100% goodwill)method the goodwill on acquisition is:
A) $140,000
B) $186,000
C) $70,000
D) none of the above
Q2) Under the entity concept of consolidation the NCI is recognised as a liability.
A)True
B)False
Q3) The measurement of the NCI allocation will be based on the subsidiary company's equity account balances.
A)True
B)False
Q4) The shareholders' interest in a subsidiary that is termed a 'minority interest' derives its name because,in comparison to the interest held be the shareholders of the parent entity,the minority interest:
A) Has less equity in the subsidiary.
B) Has less voting power in the subsidiary.
C) Has less equity and less voting power in the subsidiary.
D) None of the above.
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Chapter 6: Partly-Owned Subsidiaries: Indirect
Non-Controlling Interest
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Sample Questions
Q1) Using the data from Question 2 the Parent Ltd NCI indirect ownership interest in S2 is:
A) 10%
B) 40%
C) 6%
D) none of the above
Q2) Why is the indirect NCI not entitled to any share of pre acquisition equity under the multiple consolidation method?
Q3) Using the data from Question 4 but assuming that Parent Ltd controls S2 Ltd without holding any shares in S2 Ltd.The Parent Ltd indirect interest in S1 Ltd is:
A) 100%
B) 70%
C) nil
D) none of the above
Q4) Using the data from Question 4 the total NCI in S1 Ltd is:
A) 10%
B) 14%
C) 24%
D) none of the above
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Chapter 7: Consolidated Cash Flow Statements
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Sample Questions
Q1) A company has total sales revenue of $600,000 for a period.The balance of Accounts Receivable was $200,000 at the start of the year and $220,000 at the end of the year.Cash sales amounted to $50,000.Receipts from customers is:
A) $600,000
B) $530,000
C) $550,000
D) $580,000
Q2) Cash flows from operating activities can be calculated using:
A) the direct method
B) the indirect method
C) either the direct or indirect method
D) none of the above
Q3) Discuss the basis of classifying cash flows arising from interest paid.
Q4) The purpose of holding a cash equivalent is irrelevant for the classification in the statement of cash flows
A)True
B)False
Q5) In preparing a consolidated statement of cash flows what items can be shown on a net cash flow basis?
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Chapter 8: Accounting for Joint Arrangements
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Sample Questions
Q1) When preparing the equity accounting adjustments in the consolidated financial statements,losses on the investment will be accounted for:
A) for the current year only
B) for all prior years
C) for current year and all prior years
D) not accounted for
Q2) On January 1 20X7,a parent entity Emborough Ltd acquired 20% of the share capital of Bernborough Ltd and the power to significantly influence the operating and financial policies of that company for $4,500,000 cash.In the period from the date of acquisition to June 30 20X7,Bernborough Ltd earned a profit for the period of $400,000 (after tax of $200,000),recognised a post-acquisition asset revaluation increment of $500,000 (deferred tax liability $100,000)and declared a dividend of $200,000.At June 30
20X7,Emborough Ltd recognised its equity in the dividend. In the consolidated balance sheet as at June 30 20X7 of the group controlled by Emborough Ltd,the investment in the associate would be reported at an amount of:
A) $4,620,000
B) $4,500,000
C) $4,680,000
D) None of the above.
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Chapter 9: Accounting for Associates and Joint Ventures: the Equity Method
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Sample Questions
Q1) Discuss the principles applying to the calculation of a gain on the sale of a portion of a jointly controlled operation.
Q2) Midstream Ltd and Delta Ltd enter into a business undertaking to lease a 100-hectare vineyard from Pinot Ltd.There is a contractual agreement between the two companies whereby they share control and must agree on all strategic financial and operating decisions.The two companies appoint Todman Management Pty Ltd as the vineyard manager.A separate set of accounting database is established for the undertaking and each investor contributes cash capital to the undertaking and hold the assets as tenants in common.The intention of the investing companies is to take their proportionate share of the produce of the vineyard to use in their own wineries.The business undertaking is:
A) A joint venture operation since the investors have agreed to a sharing of control and to a sharing of the produce of the vineyard.
B) A joint venture entity since the undertaking has been established as a separate entity in which there is a simple sharing of control.
C) A simple partnership in which two companies operate as partners in a business undertaking.
D) None of the above.
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Chapter 10: Translation and Consolidation of Foreign Currency Financial Statements
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31 Verified Questions
31 Flashcards
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Sample Questions
Q1) An exchange rate stated in the indirect form as AUD 1.25 = USD 1.00 represents a reciprocal of:
A) .80
B) 1.00
C) 1.25
D) none of the above
Q2) What of the following factors indicate that the functional currency of a foreign operation is not that of the reporting entity?
A) The activities of the foreign operation are carried out with a significant degree of autonomy.
B) There are no material inter-entity transactions or other exchanges between the foreign entity and the reporting entity.
C) The day-to-day financing of the foreign operation is not supplied by the reporting entity and the cash flows of the reporting entity are largely unaffected by the cash flows of the foreign operation.
D) All of the above.
Q3) Discuss the objectives of translation of financial statements of foreign operations.
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Page 12
Chapter 11: Segment Reporting by Diversified Entities
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27 Verified Questions
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Sample Questions
Q1) On the basis of revenue,asset and results,the reportable business segments are:
A) Piebalds, Pintos and Crillos.
B) Piebalds, Skewbalds, Pintos and Crillos.
C) Piebalds, Skwsbalds, Pintos, Crillos and Others.
D) None of the above.
Q2) Under Accounting Standard AASB8 Operating Segments segments are delineated on the basis of:
A) industries of operation
B) differences in risk and return
C) the internal management and reporting structure
D) none of the above
Q3) The aim of segment reporting is to provide entity stakeholders with the information required to:
A) Have a better understanding of the entity's past performance.
B) Make a more informed assessment of the entity's risks and returns.
C) Make more informed judgments about the performance and position of the entity as a whole.
D) All of the above.
Q4) Outline the requirements to report information on geographical segments under current accounting standards
Page 13
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