Group and Consolidated Financial Statements
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Course Introduction
This course provides an in-depth understanding of the preparation and presentation of group and consolidated financial statements in accordance with international accounting standards. It covers the concepts, principles, and procedures involved in consolidating the accounts of parent and subsidiary entities, focusing on the treatment of non-controlling interests, goodwill, intra-group transactions, and investments in associates and joint ventures. Students will learn the technical processes for eliminating inter-company balances and transactions, and gain the skills necessary to analyze and interpret consolidated financial reports for decision-making and regulatory compliance.
Recommended Textbook
Accounting for Corporate Combinations and Associations 8th Australian Edition by Neal Arthur
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11 Chapters
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401 Flashcards
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Chapter 1: Text Objectives and Introduction to Consolidation
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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 reports (GPFRs)
- SAC 1 provides factors to be considered in determining the 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) Company B is bound by contract to sell all its output to Company A.Company A is deemed to control Company B.
A)True
B)False Answer: False
Q3) A trust cannot be an entity.
A)True
B)False Answer: False
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Page 3
Chapter 2: Principles of Consolidation
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Sample Questions
Q1) On the acquisition date,the fair value of Slate's identifiable net assets was $750 000,which was represented by issued capital of $550 000 and retained earnings of $200 000.If Pristine Company paid $825 000 to acquire all of the issued shares of Slate,what amount of goodwill will be recognised by the group?
A) $200 000
B) $0
C) $75 000
D) $275 000
Answer: C
Q2) A company adopting the replaceable rules included in the Corporations Act announces a dividend to be paid after the balance date.The company:
A) must recognise a liability in its financial statements.
B) must not recognise a liability.
C) has the choice of whether to recognise a liability or not.
D) none of the above.
Answer: B
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Chapter 3: Fair Value Adjustments and Tax Effects
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Sample Questions
Q1) Explain the basis on which adjustments to deferred tax assets and liabilities arise on consolidation.
Answer: Deferred tax assets/liabilities on consolidation:
- Deferred tax assets and liabilities arise where temporary differences between carrying amount and tax base of assets and liabilities exist.
- For a group,the tax base will be the same as for individual companies in the group.
- Therefore,when consolidation adjustments are made (e.g.,fair value adjustments),the carrying amounts change while the tax base remains the same.This will require deferred tax adjustments on consolidation.
Q2) An acquired entity may realize its brand name.
A)True
B)False
Answer: False
Q3) Goodwill is measured as the difference between book values and fair values of the net identifiable assets acquired from the cost of acquisition.
A)True
B)False
Answer: False
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5
Chapter 4: Intra-Group Transactions
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Sample Questions
Q1) A Ltd sells inventory to its parent P Ltd for $60 000 representing a mark-up of 50% on cost.At year-end,3/4 of the goods are still held by P Ltd.The unrealised profit to be eliminated on consolidation is:
A) $20 000.
B) $15 000.
C) $30 000.
D) $10 000.
Q2) P Ltd sold an item of property,plant and equipment to its subsidiary S Ltd on the following basis: cost to P Ltd $24 000.The equipment is three years old and had been depreciated at 10% per annum straight line.Sale price was $20 000.The gain recorded by P Ltd on sale would be:
A) $20 000.
B) $4000.
C) $3200.
D) $0.
Q3) Unrealised gains on the intragroup sale of depreciable assets are realised via depreciation charges over the remaining useful life of the asset.
A)True
B)False
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Page 6
Chapter 5: Non-Controlling Interest
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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) Preference shares of a subsidiary not owned by the parent company will be included as part of the NCI.
A)True
B)False
Q3) Under current accounting standards,it is not possible to record a negative NCI in consolidated financial statements.
A)True
B)False
Q4) When an investment in a subsidiary is impaired,any impairment losses will be:
A) apportioned between PI and NCI.
B) borne by the PI.
C) Ignored.
D) none of the above.
Q5) Why does AASB 3 allow a choice in the measurement of NCI at the date of acquisition?
7
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Chapter 6: Partly-Owned Subsidiaries: Indirect
Non-Controlling Interest
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Sample Questions
Q1) Cross-shareholdings between subsidiaries are:
A) legal under the Corporations Act.
B) illegal under the Corporations Act.
C) not covered by the Corporations Act.
D) none of the above
Q2) 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.
Q3) Parent Ltd owns 90% of S1 Ltd and S1 Ltd owns 60% of S2 Ltd.Parent Ltd's indirect ownership interest in S2 Ltd is:
A) 90%.
B) 60%.
C) 54%.
D) none of the above.
Q4) Is the proportionate interest goodwill method consistent with not allocating goodwill impairment losses against the indirect NCI?
Page 8
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Chapter 7: Consolidated Cash Flow Statements
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Sample Questions
Q1) Assets owned by a subsidiary acquired during the year are treated as negative financing cash flows in a consolidated statement of cash flows.
A)True
B)False
Q2) A Ltd acquires 100% of shares of B Ltd for $195 000,financed by an issue of 100 000 x $1.50 shares and $45 000 cash.B Ltd has cash balances of $35 000 at the date of acquisition.Which amount will A Ltd record for cash flow from investing in its consolidated statement of cash flows?
A) ($195 000)
B) ($450 000)
C) ($10 000)
D) ($35 000)
Q3) The issue of shares to purchase non-current assets will be disclosed:
A) as a financing activity.
B) as an investment activity.
C) as both a financing and investment activity.
D) in the note disclosure to the statement of cash flows.
Q4) Discuss the basis of classifying cash flows arising from interest paid.
Q5) Why is cash flow from operating activities seen as a performance measure?
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Chapter 8: Accounting for Joint Arrangements
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Sample Questions
Q1) The line-by-line method of accounting hides the existence of interests in jointly controlled operations and jointly controlled assets.
A)True
B)False
Q2) 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.
Q3) Unrealised profits or losses on the transfer of assets to a jointly controlled operation are always offset against the joint venture investment account.
A)True
B)False
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Chapter 9: Accounting for Associates and Joint Ventures: the Equity Method
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Sample Questions
Q1) The balance of an investment in an associate account cannot be negative.
A)True
B)False
Q2) The use of the equity method primarily provides information to the investor in relation to:
A) profit performance of the investee.
B) valuation of the investment.
C) dividend policy of the investee.
D) none of the above.
Q3) Goodwill arising on an equity investment is not required to be separately tested for impairment.
A)True
B)False
Q4) A owns 40% of B and 30% of C.Both B and C own 15% of D each.There is a presumption of significant influence by A over:
A) B and C.
B) B only.
C) B, C and D.
D) no significant influence over any of B,C and D.
Q5) Discuss the basis of the equity carrying amount of the investment.
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Chapter 10: Translation and Consolidation of Foreign Currency Financial Statements
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Sample Questions
Q1) Foreign currency transactions include:
A) sale of goods to a foreign buyer.
B) purchase of goods from a foreign supplier.
C) borrowing from a foreign lender where the loan is denominated in a foreign currency.
D) all of the above.
Q2) Accounting for a foreign subsidiary must use the 'translate then consolidate' approach.
A)True
B)False
Q3) Under the current rate method foreign exchange,differences are recognised in:
A) profit or loss.
B) other comprehensive income.
C) Equity.
D) none of the above.
Q4) Where the choice of an entity's functional currency is not clear-cut,the choice should be based on currency of largest proportion of export sales.
A)True
B)False
Page 12
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Chapter 11: Segment Reporting by Diversified Entities
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Sample Questions
Q1) The management approach to identifying segments will result in consistency between internal and external reporting of segment information.
A)True
B)False
Q2) Discuss the issues involved in allocating revenues,profits and assets to segments.
Q3) A diversified group is one that operates in markets that:
A) have different rates of profitability.
B) have different opportunities for growth.
C) have different degrees of risk.
D) all of the above.
Q4) The major argument for the disclosure in segment information concerns financial statement presentation.
A)True
B)False
Q5) A segment that does not meet any of the materiality thresholds in the current period can never be disclosed as a reportable segment.
A)True B)False
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