Deck 17: The Corporate Group

Question 1

When preparing consolidated financial statements, AASB 127 Consolidated and Separate Financial Statements is most closely based on the:

A)Parent entity concept
B)Proprietary concept
C)Legal group concept
D)Entity concept

Answer 1

D

Question 2

Which of the following statements is not correct:

A)A liquidator of a company does not control that company under the AASB 3 definition
B)A foreign wholly-owned subsidiary whose control is impaired due to an oppressive government would be excluded from the consolidation
C)Control can exist for a period of less than twelve months
D)A jointly controlled entity must be included in the consolidation

Answer 2

D

Question 3

The obligation to prepare and publish consolidated financial statements falls on the parent of a group, whether or not it is itself is a wholly owned subsidiary.

Answer 3

True

Question 4

Which of the following statements is most correct? In the context of consolidation:

A)Pyramiding refers to a scheme of defrauding investors by paying interest from capital
B)Pyramiding represents an advantage of group formation because a company can control all the subsidiary's assets with less than an equivalent outlay to obtain control over its shares.
C)Pyramiding is a disadvantage of group formation due to taxation effects.
D)Pyramiding refers to the formation of multi-tiered corporate groups.

Question 5

Which of the following statements is not correct?

A)Control is the power to govern the operating policies of an entity so as to obtain benefits from its activities (AASB 3)
B)Control that is joint control does not satisfy the definition of control under AASB accounting standards in respect of group formation
C)It is possible to control another company by means of economic pressure alone
D)Control could be obtained over a public listed company by obtaining 20 per cent of its voting shares.

Question 6

Under the Corporations Act the members of a consolidated entity must all be companies registered under the Corporations Act.

Question 7

What is the percentage of L Ltd's total interest in O Ltd?

A)73%
B)70%
C)76%
D)3%

Question 8

Which of the following statements is most correct? In the context of corporate groups an example of horizontal integration would be when:

A)A television station obtains control over a rival television station
B)A coal company obtains control over a steelworks
C)An investment bank makes a private equity bid for an airline
D)A privately owned grocery chain lists on the stock exchange.

Question 9

Company M controls company N.Both companies are large proprietary companies with no creditors and have annual turnover less than $2 million.Which statement is likely to be correct?

A)M is a reporting entity and N is not a reporting entity
B)M and N are legal entities and accounting entities
C)M and N comprise a legal entity
D)M is an accounting entity and N is not an accounting entity

Question 10

Ralph Ltd owns 49% of Mika Ltd and governs the operating decisions of Mika Ltd; but Ralph Ltd does not govern the financial decisions of Mika Ltd.Under AASB 3 Business Combinations Ralph Ltd would:

A)not consolidate Mika Ltd because the percentage ownership is not greater then 50%
B)consolidate Mika Ltd because Ralph Ltd governs the decision-making of Mika Ltd
C)not consolidate Mika Ltd, because Ralph Ltd must govern decision-making over both operating and financing decisions
D)consolidate Mika Ltd because, despite the fact that less then 50% is owned, it is highly likely that Ralph Ltd would cast a majority vote at the annual general meeting

Question 11

An indirect interest derives from holding shares in a subsidiary company's parent.

Question 12

A owns 85% of B, 90% of C, 95% of D and 94% of E.B owns 3% of C and 1% of D.In which subsidiary does A have the greatest direct and indirect ownership?

A)Company B
B)Company C
C)Company D
D)Company E

Question 13

Can an economic entity not be a reporting entity?

A)No, because although not explicitly stated in the Corporations Act, economic entities are always reporting entities
B)Yes, because the Corporations Act states that economic entities are not reporting entities
C)No, because the Corporations Act states an economic entity is a reporting entity
D)Yes, because the reporting entity test is specifically not dependent upon whether an economic entity exists

Question 14

Which of the following statements in not correct:

A)A parent company is one that controls a subsidiary company
B)A subsidiary company is one that is controlled by a parent company
C)A corporate group comprises the parent company and each of its subsidiary companies
D)A holding company is an alternative term for a nested subsidiary

Question 15

A company owned more than 50% by another must have its reports consolidated as part of a group.

Question 16

F Ltd owns 100% of G Ltd and 95% of H Ltd.H Ltd owns 90% of I Ltd and H Ltd owns 5% of J Ltd.F Ltd owns 10% of K Ltd and 10% of L Ltd.Which statement is most likely correct?

A)The only parent entity is F
B)G is a reporting entity
C)F is the ultimate parent
D)K is a sub-subsidiary of F

Question 17

M owns 20% of N, 100% of O, 90% of P and 25% of Q.R owns 55% of N and 70% of Q.Which statement is most likely correct?

A)N is not controlled by any entity
B)N, R and Q comprise a group
C)M and O comprise a group
D)M, N, O, P, Q and R comprise an economic entity

Question 18

The concept that underpins consolidations is:

A)The entity concept, as explained in the Corporations Act
B)The parent entity concept, as explicitly mentioned in AASB 127
C)The entity concept, as implied by the functioning of AASB 127 and explicitly mentioned in predecessor standards.
D)The proprietary concept, as explicitly described in AASB 3 and AASB 127.

Question 19

Joint control of a company does not satisfy the definition of control for the purpose of deciding when to prepare consolidated statements.

Question 20

What is the percentage of M Ltd's NCI interest in Z Ltd?

A)54%
B)10%
C)6%
D)0

Question 21

A large proprietary company must always produce a financial report.

Question 22

For an asset, if the group CA > CA there is a deferred tax asset (DTA).

Question 23

For a liability, if group CA > CA, there is a deferred tax asset (DTA).

Question 24

A shareholder who owns 80% of the preference shares in a company is likely to be the parent of that company.

Question 25

A non-controlling interest can not be held directly in the ultimate parent company.

Question 26

Temporary differences that arise on consolidation always result in the recognition of either a deferred tax asset or a deferred tax liability.

Question 27

To work out the tax-effects that arise from the consolidation process it is not necessary to know the tax base of the individual assets and liabilities.

Question 28

The current tax expense for a group (included in the consolidated amounts) is not always the same as the aggregate of the current tax expense reported by the group members.

Question 29

An investor who holds joint control over an entity has the option of consolidation accounting under AASB 127 or one of the accounting techniques allowed under the joint ventures accounting standard.

Question 30

The accounting firm Ferrier Hodgson exerts control over companies it liquidates under the definition of control in AASB 3.