Deck 16: Consolidation: Controlled Entities

Question 1

The process of preparing the combined financial statements of a group of entities is known as:

A) accrual accounting;
B) condensation;
C) accumulation;
D) consolidation.

Answer 1

D

Question 2

A group of entities formed by A Limited (parent entity), B Limited (subsidiary entity) and C Limited (subsidiary entity) has the following Trade Receivables balances:
$\bullet$ A Limited $12 000
$\bullet$ B Limited $15 000
$\bullet$ C Limited $10 000
The consolidated financial statements show the following amount as the consolidated Trade Receivables balance:

A) $12 000;
B) $13 000;
C) $25 000;
D) $37 000.

Answer 2

$37 000.

Question 3

The entity that is represented by a single set of consolidated financial statements known as a consolidated financial report is:

A) an economic entity;
B) a parent entity;
C) a subsidiary entity;
D) a partnership.

Answer 3

A

Question 4

Control is automatically presumed to exist where the parent either directly or indirectly through subsidiaries owns:

A) more than 25% but less than 50% of the voting power of an entity;
B) more than 10% but less than 25% of the voting power of an entity;
C) not more than 49% of the voting power of an entity;
D) more than 50% of the voting power of an entity.

Question 5

A single set of financial statements, that combines the separate sets of financial statements for a number of entities, which are managed as a single economic entity, is known as:

A) a concise financial report;
B) a condensed financial report;
C) new entity financial statements;
D) consolidated financial statements.

Question 6

The process of aggregating individual sets of financial statements to produce consolidated financial statements requires:

A) that no adjustments be entered into the individual ledger accounts of entities in the group;
B) balance sheet date adjusting journal entries to be recorded in the ledger accounts of the subsidiaries;
C) accruals of expenses and revenue, directly into the retained earnings ledger account of the parent entity;
D) balance sheet date adjusting entries directly into the ledger accounts of the parent entity only.

Question 7

For one entity to control another entity, the percentage of share ownership held by the controlling entity:

A) can be nil;
B) must be greater than 20%;
C) must be greater than 50%;
D) must be 100%.

Question 8

Which of the following is correct in relation to rights in the context of control?

A) The rights must be protective rights.
B) The rights must arise from a legal contract.
C) The rights may be administrative.
D) The rights must be substantive rights.

Question 9

For the purposes of consolidated financial reporting, a group is:

A) an entity that has no subsidiaries;
B) a parent entity and all its subsidiaries;
C) an entity that has one or more subsidiaries;
D) a subsidiary entity of another entity.

Question 10

When one entity controls the business operations of another entity, the business combination results in the following type of relationship:

A) parent-subsidiary;
B) partnership;
C) a merger;
D) dual-listed.

Question 11

All parent entities are required to present consolidated statements unless the following conditions apply to them: I. The parent is a wholly owned subsidiary.
II) The parent is a partly owned subsidiary and its owners do not object to the non-presentation of consolidated financial statements.
III) The parent's debt or equity securities are traded in a public market.
IV) The parent is not in the process of applying to issue any securities in a public market.

A) I and II only;
B) I, II and III only;
C) I, II and IV only;
D) I, II, III and IV.

Question 12

When deciding whether or not control exists over one entity by another entity:

A) the controlling entity must have exercised its power to control;
B) it is sufficient that the controlling entity has the capacity to control;
C) the controlling entity must be actively involved in governing the operations of the other entity;
D) it is necessary that the controlling entity has exerted its control over the financing policies of the other entity.

Question 13

Which is not one of the three elements of control?

A) the ability to use power over the investee to affect the amount of the investor's returns;
B) holding majority voting rights;
C) power over the investee;
D) exposure, or rights, to variable returns from involvement with the investee.

Question 14

According to IFRS 10, which of the following factors indicate the existence of control? I. Possessing existing rights that give the current ability to direct the relevant activities.
II) Shared power in the governance of financial and operating policies of another entity so as to obtain benefits.
III) The power to govern the operating policies of an entity so as to obtain benefits.
IV) Ownership of more than 50% of the voting power in the subsidiary.

A) I, II and III only;
B) I and IV only;
C) II and IV only;
D) IV only.

Question 15

A Ltd is a listed public company and has an 80% controlling interest in B Pty Ltd. B Pty Ltd is the parent of C Pty Ltd. In which of the following situations will B Pty Ltd not be required to prepare consolidated financial statements?

A) If B Pty Ltd prepares separate financial statements that comply with IFRS.
B) If the other owners of B Pty Ltd have consented to the non-preparation.
C) Where it is likely that there are external users dependant on the information.
D) B Pty Ltd would never be required to prepare consolidated financial statements.

Question 16

If a controlling entity has delegated control to another entity, the parent is deemed to be:

A) the delegated party who is actively exercising control;
B) both the delegating party and the party to whom control has been delegated;
C) the entity who delegated the control;
D) neither entity as actual control has been lost.

Question 17

In a consolidated group of entities, control over the subsidiaries in the group:

A) may not be shared control;
B) can be shared with other parties;
C) can be less than 100% control;
D) can be less than 50% control.

Question 18

Unicorn Trustees has a fiduciary relationship with Amble Limited enabling it to direct certain activities of Amble Limited. As a result of this relationship:

A) Unicorn Trustees is regarded as a parent entity of Amble Limited;
B) Amble Limited is regarded as a subsidiary of Unicorn Trustees;
C) a parent-subsidiary relationship is not regarded as existing between these two parties;
D) a parent-subsidiary relationship is regarded as existing between these two parties as Unicorn is able to direct the activities of Amble Limited.

Question 19

Two entities A Limited and B Limited together form a third entity, C Limited. C Limited acquires A Limited and B Limited. According to IFRS 3 Business Combinations:

A) A Limited and B Limited cease to exist and C Limited is the acquirer;
B) the combined A Limited and B Limited is the acquirer of C Limited;
C) C Limited is considered to be the acquirer;
D) C Limited is not to be considered to be the acquirer.

Question 20

The key criterion for the consolidation of the separate financial statements of entities is:

A) substance over form;
B) control;
C) the existence of contracts for the supply of goods between the entities;
D) capacity of the accounting systems to facilitate the necessary combination process;

Question 21

In a business combination:

A) it is not necessary to identify the acquirer as long as parent entity has been identified;
B) the parent entity will always be the acquirer;
C) the accounting acquirer is the entity that becomes the controlling entity;
D) the legal acquirer is the entity that becomes the controlling entity.

Question 22

Which of the following statements applies to reverse acquisitions? $$\begin{array} { | l | l | l | l | } \hline \text { I. } & \begin{array} { l } \text { The accounting acquirer would } \\\text { issue equity shares to the } \\\text { accounting acquire. }\end{array} & \text { III. } & \begin{array} { l } \text { The legal subsidiary has the power to govern } \\\text { the financial and aperating policies of the } \\\text { combined entity. }\end{array} \\\hline \text { II. } & \begin{array} { l } \text { The legal acquirer is identified } \\\text { as accounting acquiree. }\end{array} & \mathrm { IV } . & \begin{array} { l } \text { Consolidated financial statements prepared } \\\text { following a reverse acquisition are issued } \\\text { under the name of the accounting acquirer. }\end{array} \\\hline\end{array}$$

A) I and III;
B) I and IV;
C) II and III;
D) II and IV.

Question 23

Truong Limited acquired 60% of the shares of Quang Limited through the Australian Securities Exchange. The share acquisition cost Truong Limited $500 000. As a result of the share acquisition, Truong Limited gained control over Quang Limited. In its accounting records, Truong will recognise:

A) an investment at a cost of $500 000
B) an investment with a market value of $300 000
C) an increase in share capital of $500 000
D) an increase in share capital of $300 000.

Question 24

The main characteristic of a structured entity according to IFRS 12 is that:

A) the parent entity must have more than 80% of voting rights in the structured entity in order to gain control;
B) voting or similar rights are not the dominant factor in deciding who controls the entity;
C) the legal acquirer of such entity will become the accounting acquiree;
D) it is controlled by two or more parent entities.

Question 25

According to IFRS 12, parent entities are required to disclose: I. Summarised financial information about each subsidiary.
II) A list of significant investments in subsidiaries.
III) If the subsidiary is not wholly owned, the names of all other members.
IV) The country of incorporation of subsidiaries.

A) I, II and IV only;
B) II, III and IV only;
C) I and IV only;
D) I, II, III and IV.

Question 26

If an investor entity owns more than half of the voting or potential voting power of an investee and does not account for the investment as a subsidiary, IFRS 12 requires the following disclosure:

A) the reasons why the ownership of the investee does not constitute control;
B) the nature of the relationship between the investor and investee;
C) the significant judgements and assumptions it has made in determining the nature of the interest in the other entity;
D) the amount of any repayments of borrowings between the investor and investee during the period.

Question 27

If a parent entity chooses not to prepare consolidated financial statements, IAS 27 Separate Financial Statements requires the following disclosures in the separate financial statements of the parent: I. The name, country of residence and voting power of the directors of the parent.
II) That the exemption from consolidation has been used.
III) A list of significant investments including the proportion of ownership.
IV) A description of the method used to account for the investments.

A) I, II and IV only;
B) II, III and IV only;
C) II and III only;
D) IV only.