Question 1

When deciding whether or not one entity controls 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 the decision making of the other entity.
D)the controlling entity must have exerted its control over the financing policies of the other entity.

Accepted Answer

The concept of control in the context of determining whether one entity controls another is based on the capacity to control, rather than the actual exercise of power, active involvement in decision-making, or exertion of control over financing policies. This means that if an entity has the rights or means to direct the relevant activities of another entity, it is considered to have control, regardless of whether these rights are actively exercised.

Question 2

A subsidiary is an entity that:
A)has significant influence over a parent entity.
B)exercises control over a parent entity.
C)has the power to control a parent entity.
D)is controlled by another entity.

Accepted Answer

A subsidiary is an entity that is controlled by another entity, known as the parent company or holding company. The parent company usually holds a majority of the subsidiary's outstanding stock or shares, giving it the power to control the subsidiary's operations and decisions. Therefore, the correct choice is D - "is controlled by another entity". Choices A, B, and C are incorrect because they imply a level of influence or control that is not necessarily present in all subsidiary relationships.

Question 3

According to AASB 10 Consolidated Financial Statements,all parent entities are required to present consolidated statements unless which of the following conditions apply to them?
I The parent is a wholly owned subsidiary.
II The parent is a partly owned subsidiary and its other 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

Accepted Answer

A parent entity is exempt from presenting consolidated financial statements if it is a wholly owned subsidiary or a partly owned subsidiary with no objection from other owners, and it is not publicly traded or in the process of issuing public securities.

Question 4

The process of preparing consolidated financial statements requires that:
A)no adjustments be made to the individual financial statements or ledger accounts of the entities in the group.
B)adjusting journal entries be recorded in the ledger accounts of the subsidiaries only.
C)accruals of expenses and revenues be recorded directly into the retained earnings account of the parent entity.
D)adjusting journal entries be recorded in the ledger accounts of the parent only.

Accepted Answer

Consolidated financial statements are prepared by combining the financial statements of the parent and its subsidiaries without making adjustments to the individual financial statements or ledger accounts of the entities in the group. Adjustments are typically made in the consolidation worksheet, not in the individual ledgers.

Question 5

In the context of control,which of the following is correct regarding rights?
A)They must be protective rights.
B)They must arise from a legal contract.
C)They must arise as a result of future events.
D)They must be substantive rights.

Accepted Answer

In the context of control, it is important that rights must be substantive and not just protective. Substantive rights provide actual decision-making power, whereas protective rights only provide limited veto power. Rights can arise from various sources, including legal contracts, but this is not a necessary requirement for the exercise of control. Future events may also give rise to rights, but this is also not a defining characteristic of control. Therefore, the correct option is D) They must be substantive rights.

Question 6

At balance date,Company A has 40% of the voting rights in Company B.In addition Company A holds potential voting rights in Company B amounting to 6% that are currently exercisable,and a further 9% of voting rights in Company B that can be exercised in two years' time.Which of the following statements is correct?
A)Consolidated financial statements must be prepared for Company A and B in the current year.
B)Consolidated financial statements need not be prepared for Company A and B for the current year.
C)Consolidated financial statements must be prepared as Company A controls Company B at balance date.
D)Consolidated financial statements must be prepared as Company A has more than half of the voting rights in Company B at balance date.

Accepted Answer

The answer of At balance date,Company A has 40% of...

Question 7

The key characteristic that determines when consolidated financial statements should be prepared is:
A)the existence of transactions between the entities.
B)control.
C)substance over form.
D)significant influence.

Accepted Answer

The key characteristic that determines when consolidated financial statements should be prepared is control. This means that when an entity has control over another entity, the financial statements should be consolidated. The existence of transactions between the entities, substance over form, and significant influence may indicate related party transactions, but on their own, they do not necessarily require the preparation of consolidated financial statements.

Question 8

The equity in a subsidiary not attributable to a parent is known as a/an:
A)non-controlling interest.
B)attributable interest.
C)non-parent interest.
D)external interest.

Accepted Answer

The equity in a subsidiary that is not attributable to a parent is referred to as a non-controlling interest. This represents the portion of the subsidiary's equity that is owned by outside parties, such as minority shareholders or other investors.

Question 9

For the purposes of consolidated financial reporting,a group is:
A)an investor and its investees.
B)a parent entity and all its subsidiaries.
C)an entity that has one or more subsidiaries.
D)an entity that is controlled by a parent.

Accepted Answer

A group refers to a parent entity and all its subsidiaries, therefore option B is the correct choice. The other options do not encompass all the necessary entities for consolidated financial reporting.

Question 10

A single set of financial statements that combines the separate sets of financial statements for all entities within an economic entity,is known as:
A)a concise financial report.
B)a condensed financial report.
C)combined financial statements.
D)consolidated financial statements.

Accepted Answer

The term "consolidated financial statements" is used when combining the financial statements of multiple entities within an economic entity. This term accurately reflects the process of consolidating the financial information of separate entities into one set of financial statements. Choices A and B do not accurately describe the nature of combined financial statements, and choice C is incomplete and does not fully capture the meaning of the term.

Question 11

When one entity controls another entity,the business combination results in which of the following types of relationship?
A)Parent-subsidiary
B)Investor-investee
C)Investor-associate
D)Parent-child

Accepted Answer

A parent-subsidiary relationship exists when one entity (the parent) has control over another entity (the subsidiary) through ownership of more than 50% of the subsidiary's voting stock. This type of relationship is the result of a business combination where the acquiring company (parent) purchases controlling interest in the acquired company (subsidiary). The other choices, investor-investee and investor-associate relationships, do not necessarily imply control and ownership as strongly as the parent-subsidiary relationship does. The choice D) Parent-child is not a commonly recognized term in relation to business combinations.

Question 12

Which of the following is not one of the three elements of control according to AASB 10 Consolidated Financial Statements?
A)The ability to use power over the investee to affect the amount of the investor's returns.
B)Dominating the decision making of the investee.
C)Power over the investee.
D)Exposure,or rights,to variable returns from involvement with the investee.

Accepted Answer

Dominating the decision making of the investee is one of the elements of control according to AASB 10 Consolidated Financial Statements. The other two elements are power over the investee and the ability to use power over the investee to affect the amount of the investor's returns. Exposure, or rights, to variable returns from involvement with the investee is also an element of control. Therefore, the correct answer is B.

Question 13

Eastpac Bank has lent Alexandra Ltd $500 000.Part of the loan contract prevents Alexandra from borrowing money in the future from other banks without the permission of Eastpac.As a result of this relationship:
A)Eastpac Bank is regarded as a parent entity of Alexandra Limited.
B)Alexandra Limited is regarded as a subsidiary of Eastpac Bank.
C)a parent-subsidiary relationship does not exist between these two parties.
D)a parent-subsidiary relationship is regarded as existing between these two parties as Eastpac Bank is able to direct the relevant activities of Alexandra Limited.

Accepted Answer

The loan contract and the restriction on borrowing do not indicate a parent-subsidiary relationship between the two parties.

Question 14

According to AASB 10 Consolidated Financial Statements,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 have significant influence over the operating policies of an entity so as to obtain benefits.
IV.Ownership of more than 50% of the voting rights in the subsidiary.
A)I,II and III only
B)I and IV only
C)II and IV only
D)IV only

Accepted Answer

According to AASB 10, control exists when an entity has the power to direct the relevant activities of the other entity, which includes the power to govern the financial and operating policies of that entity, and when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to use its power to affect those returns. Ownership of more than 50% of the voting rights in the subsidiary indicates the existence of control, while shared power in the governance of financial and operating policies only indicates joint control, and significant influence over operating policies indicates the ability to exercise influence, but not control. Possessing existing rights that give the current ability to direct the relevant activities also indicates control. Therefore, the correct choice is B (I and IV only).

Question 15

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 entities.
C)requires 100% ownership of the subsidiaries' shares.
D)can exist where the rights are purely protective rights.

Accepted Answer

Control in a consolidated group implies that the parent company has the ability to govern the financial and operating policies of a subsidiary so as to benefit from its activities. This control is typically not considered shared control, as shared control would imply a joint arrangement, not a parent-subsidiary relationship. Control does not require 100% ownership—more often, it is achieved through a majority of voting rights. Protective rights are designed to safeguard an investor's interest rather than establish control.

Question 16

The reasons for the preparation of consolidated financial statements include which of the following?
A)Reporting of risks and benefits
B)Comparable information
C)Supply of relevant information
D)All of the above

Accepted Answer

The preparation of consolidated financial statements is necessary to provide a comprehensive view of a group of companies' financial position, performance and cash flows. This is achieved by combining the financial results of individual companies into a single set of financial statements. This consolidated information helps investors and stakeholders in assessing risks and benefits, making comparisons between companies, and obtaining relevant information about the overall performance of the group. Therefore, all of the above options are valid reasons for the preparation of consolidated financial statements.

Question 17

The process of preparing the combined financial statements of a group of entities is known as:
A)aggregation.
B)combination.
C)accumulation.
D)consolidation.

Accepted Answer

The process of preparing the combined financial statements of a group of entities is known as consolidation. This involves combining the financial information of the parent company and its subsidiaries, eliminating any intercompany transactions or balances, and presenting the results as if the group were a single entity. Aggregation, combination, and accumulation are not the correct terms for this process.

Question 18

The entity that is represented by a single set of consolidated financial statements is:
A)an economic entity.
B)a parent entity.
C)a subsidiary entity.
D)a consolidated entity.

Accepted Answer

Consolidated financial statements are prepared for economic entities, which are groups of companies that are under common control or ownership. The consolidated statements provide a comprehensive view of the financial position, performance, and cash flows of the economic entity as a whole. B and C refer to specific types of entities within an economic entity, while D is not a recognized term in accounting.

Question 19

AASB 10 Consolidated Financial Statements defines a 'parent' and a 'subsidiary' as which of the following?

Accepted Answer

The answer of AASB 10 Consolidated Financial Statements defines a...

Question 20

Rights to variable returns from an investee include:
A)from economies of scale.
B)remuneration from provision of services.
C)returns from denying or regulating access to a subsidiary's assets.
D)all of the above.

Accepted Answer

Variable returns refer to the profits or losses that an investor can expect from their investment. The options listed in the question are all possible sources of variable returns. Economies of scale can lead to lower costs and increased profits for the parent company, which then translates to higher returns for the investor. Remuneration from services provided by the investee can also result in increased profits for the investor. Finally, denying or regulating access to subsidiary assets can result in higher profits for the parent company and therefore for the investor.

Quiz 18: Consolidation: Controlled Entities

When deciding whether or not one entity controls another entity:

A subsidiary is an entity that:

The process of preparing consolidated financial statements requires that:

In the context of control,which of the following is correct regarding rights?

The key characteristic that determines when consolidated financial statements should be prepared is:

The equity in a subsidiary not attributable to a parent is known as a/an:

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

A single set of financial statements that combines the separate sets of financial statements for all entities within an economic entity,is known as:

When one entity controls another entity,the business combination results in which of the following types of relationship?

Which of the following is not one of the three elements of control according to AASB 10 Consolidated Financial Statements?

Eastpac Bank has lent Alexandra Ltd $500 000.Part of the loan contract prevents Alexandra from borrowing money in the future from other banks without the permission of Eastpac.As a result of this relationship:

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

The reasons for the preparation of consolidated financial statements include which of the following?

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

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

AASB 10 Consolidated Financial Statements defines a 'parent' and a 'subsidiary' as which of the following?

Rights to variable returns from an investee include: