Consolidated Financial Statements
Review Questions
Course Introduction
This course provides a comprehensive examination of the preparation, presentation, and analysis of consolidated financial statements in accordance with relevant accounting standards. Students will explore the principles and techniques involved in combining the financial information of a parent company and its subsidiaries, including issues related to acquisition accounting, intercompany transactions, minority interests, and the treatment of goodwill. Emphasis is placed on the consolidation process for wholly-owned and partially-owned subsidiaries, as well as special topics such as variable interest entities, joint ventures, and foreign subsidiaries. The course equips students with the skills necessary to interpret and analyze consolidated financial reports used in corporate decision-making and stakeholder communications.
Recommended Textbook
Accounting for Corporate Combinations and Associations 8th Australian Edition by Neal Arthur
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11 Chapters
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Page 2
Chapter 1: Text Objectives and Introduction to Consolidation
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Sample Questions
Q1) All companies must prepare separate financial statements.
A)True
B)False
Answer: False
Q2) Cassius Ltd and Brutus Ltd agreed to merge by forming another company,Casca Ltd,which acquired all the issued 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 because it acquired the issued capital of Cassius Ltd and Brutus Ltd.
B) Cassius Ltd is the acquiring entity because its management emerges as the dominant power in the merged entity.
C) neither Cassius Ltd nor Brutus Ltd can be the acquiring entity because their equity securities have been acquired by Casca Ltd.
D) none of the above.
Answer: B
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Chapter 2: Principles of Consolidation
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Sample Questions
Q1) Any goodwill arising on a business combination is required to be tested at least annually for impairment.This requirement arises from the operation of:
A) AASB 116 Property, Plant and Equipment.
B) AASB 3 Business Combinations.
C) AASB 138 Intangible Assets.
D) AASB 136 Impairment of Assets.
Answer: D
Q2) The general purpose financial statements (GPFS)of a parent entity are prepared from the viewpoint of the:
A) group.
B) parent entity.
C) subsidiary.
D) non-controlling interest.
Answer: A
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4
Chapter 3: Fair Value Adjustments and Tax Effects
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Sample Questions
Q1) Revaluation of an acquiree's assets in a business combination via a consolidation adjustment represents the use of the cost model.
A)True
B)False
Answer: True
Q2) On consolidation,adjustment to deferred tax assets and liabilities is required for:
A) unrealised intragroup profits.
B) unrealised intragroup losses.
C) fair value adjustments.
D) all of the above.
Answer: D
Q3) A contingent liability recognised in a business combination will be recorded:
A) in the subsidiary's accounts.
B) in the group accounts.
C) either A or B.
D) none of the above.
Answer: B
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Page 5
Chapter 4: Intra-Group Transactions
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Sample Questions
Q1) Current accounting regulations require the separate disclosures in profit or loss of gains and losses on disposal of non-current assets.
A)True
B)False
Q2) Discuss the basis of recognition of tax effects relating to accrued revenue and expenses for such intragroup items as management fees and interest.
Q3) Unrealised gains and losses on intragroup sales of non-depreciable assets can only be realised by sales outside the group.
A)True
B)False
Q4) Consolidation entries never adjust cash because intragroup transactions do not alter the group's cash position.
A)True
B)False
Q5) Tax effect adjustments only apply to consolidation adjusting entries that affect the carrying amount of parent subsidiaries.
A)True
B)False
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Chapter 5: Non-Controlling Interest
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Sample Questions
Q1) Where the full goodwill on acquisition is recognised in the consolidated financial statements,any impairment loss will be allocated between parent interest and NCI on the same basis as profit or loss.
A)True
B)False
Q2) The consolidation technique of NCI allocation is based on the proposition that non-controlling shareholders have an ownership interest in group equity.
A)True
B)False
Q3) The disclosure of the non-controlling interest proportion of each equity balance in the consolidated financial statements provides useful information on:
A) dividend payment capacity.
B) business activity results.
C) segment activity results.
D) all the above.
Q4) Why does AASB 3 allow a choice in the measurement of NCI at the date of acquisition?
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Chapter 6: Partly-Owned Subsidiaries: Indirect
Non-Controlling Interest
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Sample Questions
Q1) In a multiple consolidation,the ownership interests of subsidiaries are determined using:
A) direct ownership interests.
B) indirect ownership interests.
C) both direct and indirect ownership interests.
D) none of the above.
Q2) Parent Ltd owns 90% of S1 Ltd and S1 Ltd owns 60% of S2 Ltd.The Parent Ltd NCI indirect ownership interest in S2 Ltd is:
A) 10%.
B) 40%.
C) 6%.
D) none of the above.
Q3) The calculation of notional profits of entities with cross-shareholdings is required to: A) determine the parent ownership interest in the subsidiaries.
B) determine the NCI ownership interest in the subsidiaries.
C) determine both the parent and NCI ownership interests in the subsidiaries.
D) none of the above.
Q4) Discuss the disadvantages of the sequential consolidation method.
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Chapter 7: Consolidated Cash Flow Statements
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Sample Questions
Q1) Cash flow from operating activities is the default classification in a statement of cash flows.
A)True
B)False
Q2) A company holds $100 000 in a term deposit account as an interest-generating investment.For purposes of the statement of cash flows,the term deposit will be classified as:
A) a cash equivalent.
B) an investment.
C) either a cash equivalent or an investment.
D) none of the above.
Q3) Why is cash flow from operating activities seen as a performance measure?
Q4) Accounting Standard AASB 107 Statement of Cash Flows mandates the provision of cash flow information from operating,financing and investing activities.
A)True B)False
Q5) The time to maturity is relevant in the classification of cash equivalents. A)True B)False
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Chapter 8: Accounting for Joint Arrangements
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Q1) What is meant by the statement that a venturer will account for an interest in a jointly controlled operation or jointly controlled asset by 'converting from the one-line method to the line-by-line method'?
Q2) Where a venturer is a subsidiary company,the equity method would be applied to an investment in a jointly controlled entity:
A) in the joint venture entity financial statements.
B) in the subsidiary's financial statements.
C) in the consolidated financial statements.
D) none of the above.
Q3) The essential element that would distinguish a business undertaking as a partnership and NOT a joint venture operation would be:
A) the business undertaking makes a profit in the year.
B) there is no joint control agreement so that the undertaking is neither a joint venture entity nor a joint venture operation.
C) the business activity is an undertaking formed by the investors with the intention of making a profit.
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) On 1 November 20X6,a parent entity,Helios Ltd,acquired 25% (500 000 shares)of the share capital of Havers Ltd and the power to significantly influence the operating and financial policies of that company for $4 000 000 cash.In the period from the date of acquisition to 30 June 20X7,Havers Ltd earned a profit for the period of $500 000 (after tax of $200 000)and declared a dividend of $100 000.At 30 June 20X7,Helios Ltd recognised its equity in the dividend.At 30 June 20X7,the quoted market value of the shares in Havers was $10 per share.At 30 June 20X7,in the separate balance sheet of Helios Ltd and in the consolidated balance sheet of the group controlled by Helios Ltd,the investment in Havers Ltd would be reported as:
A) $4 000 000 and $4 100 000 respectively.
B) $5 000 000 and $4 100 000 respectively.
C) $5 000 000 and $5 100 000 respectively.
D) none of the above.
Q2) Goodwill arising on an equity investment is not required to be separately tested for impairment.
A)True
B)False
Q3) Discuss whether equity accounting profits are realise' from the viewpoint of the investor.
Page 11
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Chapter 10: Translation and Consolidation of Foreign Currency Financial Statements
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Sample Questions
Q1) Discuss the objectives of translation of financial statements of foreign operations.
Q2) Under the temporal method,all revenue and expense items are translated at: A) historical rate.
B) average rate.
C) either historical or average rate.
D) none of the above.
Q3) The primary economic environment in which an entity operates is determined by:
A) currency in which sales are denominated.
B) currency in which costs are denominated.
C) currency in which financing is obtained.
D) all of the above.
Q4) The term 'foreign currency transaction' refers to a transaction denominated in a currency other than Australian dollars.
A)True B)False
Q5) A foreign exchange gain arising from translating financial statements should always be recorded as revenue.
A)True B)False
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Chapter 11: Segment Reporting by Diversified Entities
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Sample Questions
Q1) Information in relation to the amount of impairment losses and reversal of impairment losses for operating segments is required under Accounting Standard AASB 136 Impairment of Assets.
A)True
B)False
Q2) Under current accounting standards,companies are required to report information on geographical segments.
A)True
B)False
Q3) Under Accounting Standard AASB 1039 Concise Financial Reports,segment information is required to be presented:
A) in the financial statements.
B) in the notes to the financial statements.
C) is not required.
D) none of the above.
Q4) On revenue and results only,the reportable business segments are:
A) Piebalds, Pintos and Crillos.
B) Piebalds, Skewbalds, Pintos and Crillos.
C) Piebalds, Skewbalds, Pintos, Crillos and Others.
D) none of the above.
Page 13
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