Deck 15: Consolidation: Controlled Entities

Question 1

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%.

Answer 1

A

Question 2

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.

Answer 2

B

Question 3

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.

Answer 3

A

Question 4

Which of the following statements is not correct?

A)All entities eligible to apply the reduced disclosure requirements under Australian Accounting Standards are exempt from having to prepare consolidated financial statements.
B)The AASB has inserted additional Australian specific paragraphs into AASB 10 to provide relief for certain entities who apply the reduced disclosure requirements from having to prepare consolidated financial statements
C)The AASB has inserted additional Australian specific paragraphs into AASB 10 to require reporting entities to apply the requirements of AASB 10.
D)All listed entities are required to apply AASB 10.

Question 5

According to AASB 12 Disclosure of Interests in Other Parties,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 6

Which of the following statements is correct?
a.The legal acquirer under AASB 3 and the accounting acquirer under AASB 10 do not have to be the same entity.
b.The entity identified under AASB 10 as the parent will be the acquirer under AASB 3.
c.The legal acquirer is determined under AASB 3 as the entity that issues the equity instruments.
d.The accounting acquirer is the entity that becomes the controlling entity.

Question 7

The key characteristic that determines which entities financial statements should be combined into a set of consolidated financial statements is:

A)the existence of transactions between the entities
B)control
C)substance over form
D)access to the financial statements of each entity that is to be combined.

Question 8

A group of entities comprised of A Limited (parent entity),B Limited (subsidiary entity)and C Limited (subsidiary entity)have the following Accounts receivable balances:
-A Limited $12 000
-B Limited $15 000
-C Limited $10 000
The consolidated financial statements show the following amount as the consolidated Accounts receivable balance:

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

Question 9

Two entities A Limited and B Limited together form a third entity,C Limited.C Limited acquires A Limited and B Limited.In this situation,AASB 3 Business Combinations,adjudges that:

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 10

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 11

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 12

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,AASB 12 Disclosure of Interests in Other Parties,requires that the following disclosure be made:

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 13

AASB 10 Consolidated Financial Statements,defines a 'parent' and a 'subsidiary' as:

Question 14

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 15

Dragon Limited is an entity listed in Hong Kong.Dragon Limited holds a 100% investment in Aussie Pty Ltd,an Australian based company,who in turn holds a 90% interest in Bondi Pty Ltd.Aussie Pty Ltd and the Aussie group (comprising Aussie and Bondi)are both non-reporting entities.Which of the following statements is correct?

A)Aussie Pty Ltd will be required to prepare consolidated financial statements as the ultimate Australian parent.
B)Aussie Pty Ltd will not be required to prepare consolidated financial statements as they are a non-reporting entity.
C)Aussie Pty Ltd will be required to prepare consolidated financial statements only if directed to do so by ASIC.
D)Aussie Pty Ltd will not be required to prepare consolidated financial statements as Dragon is a listed foreign entity.

Question 16

According to AASB 10 Consolidated Financial Statements,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 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

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 19

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.

Question 20

If a parent entity chooses not to prepare consolidated financial statements,AASB 127 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.

Question 21

Explain the key content of AASB 10.

Question 22

Discuss the concept of rights in the context of power and control

Question 23

Explain what occurs when a business combination takes place.

Question 24

Explain what criteria determines whether or not an entity is included in a set of consolidated financial statements.