Question 1

Business combination valuation adjustment entries record only the parent's share of fair value adjustments relating to a subsidiary's assets,liabilities and contingent liabilities.

Accepted Answer

Business combination valuation adjustment entries record the full fair value adjustments relating to a subsidiary's assets, liabilities, and contingent liabilities, not just the parent's share. This is because, under acquisition accounting, the acquiree's assets and liabilities are measured and recognized at their full fair values at the acquisition date.

Question 2

Where an investment in a subsidiary is acquired on an ex.div basis,the fair value of the consideration paid should exclude the amount of the dividend.

Accepted Answer

The answer of Where an investment in a subsidiary is...

Question 3

Which of the following assets cannot be revalued above their cost in the accounting records of the subsidiary?
A)Inventory
B)Plant and equipment
C)Goodwill
D)Both a and c

Accepted Answer

Inventory and goodwill cannot be revalued above their cost in the accounting records. Inventory is valued at the lower of cost or net realizable value, and goodwill, which is an intangible asset, is not revalued upwards; it is tested for impairment instead.

Question 4

The acquisition analysis may result in the recognition of assets and liabilities that are not recognised in the subsidiary's accounting records.

Accepted Answer

When a company acquires a subsidiary, the fair value of the assets and liabilities of the subsidiary may be different from their book values. As a result, some assets and liabilities may need to be recognised or adjusted in the consolidated financial statements that were not previously recorded in the subsidiary's accounting records.

Question 5

In preparing the consolidated financial statements,no adjustments are made in the accounting records of the individual entities that comprise the group.

Accepted Answer

In preparing consolidated financial statements, adjustments for intercompany transactions and balances are made in the consolidation process itself, not in the accounting records of the individual entities.

Question 6

When preparing the business combination valuation entries,there is no recognition of a deferred tax liability for goodwill.

Accepted Answer

According to accounting standards, a deferred tax liability is not recognized for goodwill because it is considered to be an indefinite-lived intangible asset with no tax basis.

Question 7

According to AASB 3 Business Combinations,the key principle relating to the disclosure of information about business combinations is to disclose information that:
A)enables financial statement users to evaluate the nature and financial effect of business combinations that occurred during the reporting period.
B)enables the preparation of the consolidated financial statements in the most cost-effective manner.
C)does not give an advantage to the competitors of a consolidated group.
D)provides financial statement users with information about the parent entity only.

Accepted Answer

The key principle relating to the disclosure of information about business combinations, as per AASB 3, is to disclose information that enables financial statement users to evaluate the nature and financial effect of business combinations that occurred during the reporting period. This helps the users to understand the impact of such combinations on the financial statements of the entity, and make informed decisions about their investments. The other options given are not relevant to the disclosure of information about business combinations. Therefore, option A is the correct answer.

Question 8

One year after acquisition date,the goodwill acquired was regarded as having become impaired by $40 000.The appropriate consolidation adjustment in relation to the impairment will include the following line:
A)DR Goodwill $40 000
B)CR Impairment expense $40 000
C)CR Business combination valuation reserve $40 000
D)CR Accumulated impairment losses $40 000

Accepted Answer

The answer of One year after acquisition date,the goodwill acquired...

Question 9

In relation to pre-acquisition of a subsidiary entity,which of the following events can cause a change in the pre-acquisition entry subsequent to acquisition date?
I Transfers to post-acquisition retained earnings.
II Depreciation on non-current assets.
III Transfers from pre-acquisition retained earnings.
IV Bonus dividends paid from pre-acquisition equity.
A)I,II,III and IV
B)I,III and IV only
C)II and III only
D)III and IV only

Accepted Answer

Depreciation on non-current assets is the only event that does not affect pre-acquisition entries, as it relates to post-acquisition activity. Transfers from pre-acquisition retained earnings and bonus dividends paid from pre-acquisition equity can result in changes to pre-acquisition entries. Transfers to post-acquisition retained earnings also affect post-acquisition entries but do not impact pre-acquisition entries. Therefore, option D is the correct answer.

Question 10

An acquisition analysis is prepared at acquisition date to identify the fair values of the identifiable assets and liabilities of the parent.

Accepted Answer

An acquisition analysis is prepared at acquisition date to identify the fair values of the identifiable assets and liabilities of the acquiree, not the parent.

Question 11

On 1 January 2012,Cowboys Ltd acquired all the issued shares in Tate Ltd.At that date,the inventory of Tate Ltd had a fair value of $10 000 more than its carrying amount.By 30 June 2013,75% of the inventory was sold to an entity outside of the group.The business combination valuation consolidation adjustment against inventory in relation to the transaction as at 30 June 2013 will be:
A)a debit of $7500.
B)a credit of $5000.
C)a debit of $5000.
D)a debit of $2500.

Accepted Answer

The adjustment is for the unsold inventory, which is 25% of the original $10,000 fair value adjustment, resulting in a debit of $2,500.

Question 12

In the case of a reverse acquisition,the subsidiary effectively becomes the acquirer and:
A)its assets and liabilities are measured at cost.
B)the parent's assets and liabilities are measured at fair value.
C)its assets and liabilities are measured at fair value.
D)none of the above.

Accepted Answer

In a reverse acquisition, the subsidiary becomes the acquirer for accounting purposes. This means that its assets and liabilities are measured at fair value, as opposed to cost. The parent's assets and liabilities may or may not be measured at fair value, depending on the specific circumstances of the transaction. Therefore, option C is the best choice.

Question 13

The main purpose of the pre-acquisition entry is to ensure no double counting of group net assets and equity.

Accepted Answer

The pre-acquisition entry is made to eliminate any intercompany transactions or balances between the parent company and the subsidiary before consolidation. This prevents the double counting of assets and equity in the consolidated financial statements.

Question 14

Where at acquisition date the parent holds shares in the subsidiary that it has previously acquired,this investment must be revalued to fair value at acquisition date.

Accepted Answer

According to IFRS 3 Business Combinations, when a parent acquires a subsidiary and already holds shares in that subsidiary, those previously held shares must be revalued to fair value at the acquisition date.

Question 15

A post acquisition transfer between retained earnings and a general reserve will result in a corresponding change to the pre-acquisition entry.

Accepted Answer

A post-acquisition transfer between retained earnings and a general reserve affects the financial statements after the acquisition date and does not alter the pre-acquisition entries, which reflect the company's position at the time of acquisition.

Question 16

Where the carrying amount of a non-current asset is more than its fair value at the date of acquisition,the difference is reflected in the deferred tax liability in the business combination valuation entries.

Accepted Answer

The difference between the carrying amount and fair value of a non-current asset at acquisition is not directly reflected in deferred tax liability; it affects the calculation of deferred tax based on temporary differences and applicable tax rates.

Question 17

If the fair value of a depreciable asset is greater than the carrying amount,in the years subsequent to the acquisition date the depreciation expense recorded in the books of the subsidiary will be greater than that for the group.

Accepted Answer

If the fair value of a depreciable asset is greater than the carrying amount, it means that the asset has appreciated in value. However, depreciation is calculated based on the original cost or carrying amount, not the current fair value. Therefore, the depreciation expense recorded in the books of the subsidiary and the group would remain the same, and not be impacted by the increase in fair value.

Question 18

Which of the following statements is correct?
A)AASB 3 Business Combinations requires that any revaluations of a subsidiary's assets at acquisition date must be done in the consolidation worksheet.
B)The revaluation of non-current assets in the subsidiary's records means that the subsidiary has adopted the cost model of accounting for those assets.
C)Revaluations of assets such as goodwill and inventory are not permitted in the accounting records of the subsidiary.
D)Inventory can be revalued to an amount greater than its cost in the records of the subsidiary.

Accepted Answer

Revaluations of assets such as goodwill and inventory are not permitted in the accounting records of the subsidiary because these assets are typically measured at cost or fair value less costs to sell, and revaluation is not a standard practice for these types of assets.

Question 19

Consolidated financial statements must be prepared using uniform accounting policies for like transactions and other events in similar circumstances.

Accepted Answer

Consolidated financial statements should use the same accounting policies for like transactions and other events that are similar in nature and circumstances. This helps to ensure consistency and comparability in the financial information presented.

Question 20

Where a subsidiary has goodwill already recorded in their books at the date of acquisition,such goodwill should be eliminated in full and then recognised on consolidation.

Accepted Answer

Goodwill arising in a subsidiary is not eliminated upon acquisition. Instead, goodwill is calculated at the group level during consolidation, which may involve adjustments to the carrying amount of the subsidiary's goodwill but does not involve eliminating the subsidiary's pre-existing goodwill in full before recognizing consolidated goodwill.

Quiz 19: Consolidation: Wholly Owned Subsidiaries