Question 1

AASB 127 "Consolidated and Separate Financial Statements" permits the reporting periods of entities in the group to be dissimilar as long as adjustments are made on consolidation to remove the impacts of different reporting periods.

Accepted Answer

False

Question 2

When an acquirer makes a bargain purchase in a business combination,the excess that remains is recognised in profit or loss of the acquirer on acquisition date.

Accepted Answer

When an acquirer makes a bargain purchase, it means that the acquirer has paid less than the fair value of the identifiable assets acquired and liabilities assumed. The excess that remains is recognised as a gain in profit or loss of the acquirer on the acquisition date. This is in accordance with the International Financial Reporting Standards (IFRS 3) and the Generally Accepted Accounting Principles (GAAP) in the United States.

Question 3

AASB 127 requires the parent company to have control of another entity in order for that entity's consolidation into the group accounts to be required.

Accepted Answer

AASB 127 requires the parent company to have control over another entity, as defined in the standard, in order for that entity to be consolidated into the parent company's group accounts. If the parent company does not have control, consolidation may not be required or may need to be done differently.

Question 4

The purpose of providing consolidated statements is to show the results and financial position of a group as if it were operating with a single source of finance:

Accepted Answer

The answer of The purpose of providing consolidated statements is...

Question 5

'Control' over a subsidiary,once determined as being in existence,can only be lost with a change in the level of ownership:

Accepted Answer

Control over a subsidiary can also be lost through changes in the governing documents or agreements, changes in the composition of the board of directors or management, or changes in the ability to exercise power over the subsidiary's activities.

Question 6

The consolidation concept adopted in AASB 127 is to include all the assets and liabilities of the parent entity and subsidiaries in the consolidation and to treat minority interests as part of the equity of the group:

Accepted Answer

This statement accurately describes the consolidation concept adopted in AASB 127.

Question 7

The first step in the consolidation process is substituting the assets and liabilities of the subsidiary for the investment account that currently exists in the parent company.

Accepted Answer

This statement is true. The consolidation process involves combining the financial statements of a parent company and its subsidiary into one set of financial statements. One of the first steps in this process is to replace the investment account in the parent company's books with the assets and liabilities of the subsidiary. This is necessary to accurately reflect the combined financial position and performance of the two companies.

Question 8

As prescribed in AASB 3 "Business Combinations",when an acquirer makes a bargain purchase,the acquirer recognises the excess as goodwill on acquisition date.

Accepted Answer

When an acquirer makes a bargain purchase, it means the consideration paid is less than the fair value of net identifiable assets acquired. In this case, the excess should be recognised as a gain in profit or loss on the acquisition date, not as goodwill.

Question 9

In the consolidated financial statements of the parent entity and its controlled entities only transactions with assets and liabilities relating to parties external to the economic entity will be reflected.

Accepted Answer

The consolidation process only includes transactions between the entities within the economic entity, and any external transactions are reflected in the financial statements of the individual entities.

Question 10

AASB 127 notes that in preparing consolidated financial statements,an entity combines the financial statements of the parent and the subsidiaries line by line by adding together,in proportion to the degree of ownership,like items of assets,liabilities,income and expenses; but not equity balances:

Accepted Answer

AASB 127 requires full consolidation of the financial statements of the parent and its subsidiaries, meaning 100% of the assets, liabilities, income, and expenses are combined, not in proportion to ownership.

Question 11

Goodwill arises at acquisition date when the purchase price exceeds the identifiable assets acquired and the liabilities assumed.

Accepted Answer

Goodwill is recognized when the purchase price of an acquisition exceeds the fair value of the identifiable assets acquired and liabilities assumed.

Question 12

A subsidiary is an entity that is controlled by a parent entity:

Accepted Answer

A subsidiary is a company or organization that is controlled by a parent company or organization. The parent entity is considered to have a controlling interest in the subsidiary, which may be a separate legal entity or a business unit of the parent. This control is usually achieved through the ownership of a majority of the voting shares of the subsidiary or through other means of control such as contractual arrangements or management agreements.

Question 13

Where separate entities in a group do not apply the same accounting methods,AASB 127 "Consolidated and Separate Financial Statements" prescribes adjustments to be made on consolidation to remove the impacts of different accounting policies.

Accepted Answer

AASB 127 requires adjustments to be made on consolidation when separate entities in a group apply different accounting methods to remove the impact of different accounting policies.

Question 14

The consolidation process does not involve any adjustments to the financial statements of the individual entities making up the group:

Accepted Answer

The answer of The consolidation process does not involve any...

Question 15

Under AASB 127 parent companies may choose whether to present one set of consolidated accounts or to provide two or more sub-sets of the consolidated accounts to cover the whole group:

Accepted Answer

AASB 127 requires parent companies to present consolidated financial statements for the entire group, not multiple sub-sets.

Question 16

It is possible for one entity to control another entity under the AASB 3 definition without the controlling entity having any equity-ownership interest in the other entity:

Accepted Answer

According to AASB 3, an entity can be controlled if it has the power to govern the financial and operating policies of another entity, even without any equity-ownership interest. Control is determined based on the concept of power, rather than ownership.

Question 17

Sullivan (1985)argued that the preparation of group accounts can proceed to the fulfilment of the true and fair notion only when partitioning is fully enforced.

Accepted Answer

Sullivan (1985) did not make this argument; the statement misrepresents the specifics of any scholarly argument made by Sullivan regarding the preparation of group accounts and the enforcement of partitioning for the fulfilment of the true and fair notion.

Question 18

A company may own more than 50 per cent of the capital of another entity and not have effective control of that entity as defined in AASB 3:

Accepted Answer

AASB 3 defines effective control as the ability to direct the relevant activities of an entity in order to generate returns. Therefore, simply owning more than 50% of the capital may not necessarily give a company effective control of another entity. Other factors, such as contractual arrangements or the presence of other significant shareholders, may impact the degree of control.

Question 19

Minority interests (minority interests)are defined as the equity in the parent company that is not provided by the group shareholders:

Accepted Answer

Minority interests refer to the portion of a subsidiary's equity that is not owned by the parent company, representing the interests of other shareholders in the subsidiary.

Question 20

Control is defined in AASB 3 as the 'capacity to manage the policies of another entity':

Accepted Answer

AASB 3 defines control as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities, not merely the capacity to manage policies.

Quiz 28: Accounting for Group Structures