Question 1

The consolidated statement of financial position at year end,in a period when the parent sold its interests in a subsidiary:

Accepted Answer

When the parent sells its interests in a subsidiary, the subsidiary is no longer controlled by the parent. Therefore, the consolidated statement of financial position should not include the assets and liabilities of the former subsidiary. The investment account should be removed from the statement and reported at cost less proceeds of the sale, which is reported separately on the statement of cash flows.

Question 2

The profit or loss on the sale of shares in a controlled entity will be the same in the parent entity's legal books as it is in the consolidated accounts.

Accepted Answer

In the consolidated accounts, transactions between the parent entity and its subsidiaries (controlled entities) are eliminated, including any profit or loss on the sale of shares within the group. However, in the parent entity's legal (individual) books, the profit or loss on the sale of shares in a controlled entity is recognized and recorded as it occurs.

Question 3

When shares in a subsidiary are sold during a period,any income and expenses recorded in the consolidated accounts that relate to the subsidiary are eliminated.

Accepted Answer

In consolidated accounts, income and expenses related to a subsidiary are included up to the date of sale. After the sale, income and expenses from the subsidiary are no longer consolidated, but any income and expenses recorded while the parent company held the shares are not retroactively eliminated.

Question 4

Non-controlling interests arising in a business combination must be measured at fair value.

Accepted Answer

Non-controlling interests can be measured either at fair value or at the proportionate share of the acquiree's identifiable net assets, according to IFRS 3 Business Combinations.

Question 5

When additional shares in a subsidiary are acquired,AASB 10 requires each acquisition to be accounted for separately.

Accepted Answer

The answer of When additional shares in a subsidiary are...

Question 6

The following consolidation adjusting journal entries appeared at the end of a period in which the parent sold all of its shareholding in a subsidiary.It received $1 200 000 for the shares. $$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Profit on sale of investment } & 500000 & \
\hline \mathrm { Dr } & \text { Loss on sales of subsidiary } & 250000 & \
\hline \mathrm { Cr } & \text { Profit after tax } & & 179000 \
\hline \mathrm { Cr } & \text { Retained earnings } & & 271000 \
\hline \mathrm { Cr } & \text { Revaluation reserve } & & 300000 \
\hline
\end{array}$$ The amount of the share of post-acquisition profits and movements in equity balances,contributed to the group by the subsidiary,and attributable to the parent,is:

Accepted Answer

The answer of The following consolidation adjusting journal entries appeared...

Question 7

Control over a subsidiary may be lost without a change in absolute or relative ownership levels.An example of this is loss of control to a court administrator as a result of bankruptcy.

Accepted Answer

Loss of control to a court administrator due to bankruptcy is a valid example of how control over a subsidiary may be lost without a change in ownership levels.

Question 8

Additional purchases of shares in a subsidiary should be accounted for by the combined tranche method,according to AASB 3.

Accepted Answer

AASB 3 does not specify the "combined tranche method" for accounting for additional purchases of shares in a subsidiary. Instead, it deals with business combinations and the acquisition method for such transactions. Additional purchases of shares in a subsidiary after control is obtained are generally accounted for as equity transactions with owners in their capacity as owners, not under AASB 3.

Question 9

In calculating the profit or loss on the sale of shares in a controlled entity that is to be included in the group accounts,consideration should be given to the share of post-acquisition profits and movements in reserves that have been recognised.

Accepted Answer

The calculation of profit or loss on the sale of shares in a controlled entity for inclusion in the group accounts should take into account the share of post-acquisition profits and changes in reserves that have been identified. This is in accordance with the accounting standards and principles for the preparation of group financial statements.

Question 10

The following consolidation adjusting journal entries appeared at the end of a period in which the parent sold all of its shareholding in a subsidiary.It received $1 200 000 for the shares. $$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Profit on sale of investment } & 500000 & \
\hline \mathrm { Dr } & \text { Loss on sales of subsidiary } & 250000 & \
\hline \mathrm { Cr } & \text { Profit after tax } & & 179000 \
\hline \mathrm { Cr } & \text { Retained earnings } & & 271000 \
\hline \mathrm { Cr } & \text { Revaluation reserve } & & 300000 \
\hline
\end{array}$$ At the time of the sale of the shares,the parent was holding the investment in subsidiary at what amount,in its own books?

Accepted Answer

The parent was holding the investment in the subsidiary at $700,000. This is calculated by subtracting the profit on sale of investment ($500,000) from the amount received for the shares ($1,200,000). The loss on sale of subsidiary is a separate transaction and does not affect the carrying amount of the investment.

Question 11

Under the single-date method,the aggregate costs of the investments would be eliminated against the parent's share of capital and reserves at the date control of the subsidiary has been ultimately established and only one amount of goodwill (or bargain gain on purchase)is calculated.

Accepted Answer

The statement is true. Under the single-date method of accounting for business combinations, the aggregate costs of the investments are initially eliminated against the parent's share of capital and reserves at the date control of the subsidiary has been ultimately established. Only one amount of goodwill (or bargain gain on purchase) is calculated at this date.

Question 12

In a business combination achieved in stages,the acquirer shall re-measure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss,if any,in equity.

Accepted Answer

In a business combination achieved in stages, the acquirer re-measures its previously held equity interest in the acquiree at its acquisition-date fair value and recognises the resulting gain or loss, if any, in profit or loss, not in equity.

Question 13

Under the single-date method goodwill would be recognised:

Accepted Answer

Under the single-date method, goodwill is recognised at the point in time when the parent entity ultimately gains control of the subsidiary. This is because the single-date method assumes that the parent acquires control of the subsidiary on a specific date, and therefore, it is at this point in time that the goodwill arises. Goodwill is calculated as the excess of the cost of acquisition over the fair value of the identifiable net assets acquired.

Question 14

The step-by-step method,where the need to revalue the subsidiary's assets,liabilities and contingent liabilities to fair value at each acquisition date,is not an indication that the acquirer has elected to apply the revaluation method for measuring assets,such as that prescribed by AASB 116 is no longer permitted by accounting standards.

Accepted Answer

The step-by-step method requires the revaluation of the subsidiary's assets, liabilities, and contingent liabilities to fair value at each acquisition date, but this does not mean that the acquirer has elected to apply the revaluation method for measuring assets as prescribed by AASB 116.

Question 15

Where a parent entity with a controlling interest in a subsidiary obtains additional equity,the carrying amounts of the controlling and non-controlling interests should be adjusted to reflect the changes in their relative interests in the subsidiary.Any difference between the fair value paid and the carrying amount of the additional interest acquired is recognised directly in profit or loss of the parent entity.

Accepted Answer

The difference between the fair value paid and the carrying amount of the additional interest acquired is recognized in equity, not in the profit or loss of the parent entity. This adjustment reflects the parent's increased investment in the subsidiary without impacting the consolidated profit or loss.

Question 16

AASB 10 Consolidated Financial Statements prescribes that changes in the parent's ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

Accepted Answer

According to AASB 10, changes in the parent's ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

Question 17

Two common approaches to accounting for acquisition of additional shares in a subsidiary include:

Accepted Answer

The step-by-step method and the single-date method are two common approaches to accounting for acquisition of additional shares in a subsidiary. The step-by-step method involves incrementally adjusting the carrying value of the investment in the subsidiary with each additional purchase. The single-date method involves adjusting the carrying value of the investment in the subsidiary to fair value at the date of acquisition. The other choices either do not exist (such as the combined tranche method and the step-by-step method) or are not related to accounting for acquisition of additional shares (such as the equity method).

Question 18

When a parent sells its interest in a subsidiary,any profit or loss generated by the subsidiary:

Accepted Answer

When a parent sells its interest in a subsidiary, any profit or loss generated by the subsidiary is to be recorded in the consolidated financial statements for the period of the year that the parent had control of the subsidiary. This means that the profit or loss will be reflected in the consolidated financial statements up until the date of the sale, but not after. The profit or loss is not transferred to the parent's investment in subsidiary account or the equity section of the consolidated accounts, nor is it set off against any remaining balance in the goodwill on acquisition account.

Question 19

Once control over a subsidiary has been lost,the parent entity must derecognise the individual assets,liabilities and equity including any non-controlling interest relating to that subsidiary.

Accepted Answer

When control over a subsidiary is lost, the parent entity must derecognise the individual assets, liabilities and equity including any non-controlling interest relating to that subsidiary in accordance with the relevant accounting standards.

Question 20

The required method (according to AASB 10)of accounting for the acquisition of additional shares in a subsidiary is the single-date method.

Accepted Answer

According to AASB 10, the single-date method is required for accounting for the acquisition of additional shares in a subsidiary. This means that the acquisition is recorded as of a specific date rather than over the course of time, to reflect the change in the ownership interest in the subsidiary at that date.

Quiz 30: Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary