Question 1

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 2

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.

The 'Cr Profit after tax' entry above represents:
A) the profit made by the parent on the sale of the shares.
B) the profit made by the economic entity on the sale of the shares.
C) the amount accruing to the minority interest of the subsidiary.
D) the share of profits derived by the subsidiary for the entire current period.
E) the share of profits derived by the subsidiary in the current period, up to the time of divestment.

Accepted Answer

E

Question 3

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

This statement is true. When preparing the consolidated financial statements, the profit or loss on the sale of shares in a controlled entity should be calculated by taking into account the share of post-acquisition profits and movements in reserves that have been recognised. This is because these profits and reserves are attributable to the controlling entity and should be included in the overall group financial performance.

Question 4

When a parent sells its interest in a subsidiary, any profit or loss generated by the subsidiary:
A) is transferred to the parent's investment in subsidiary account, and used to calculate the amount of profit or loss on the sale of the shares.
B) is immediately transferred to the equity section of the consolidated accounts, and is then available from distribution to shareholders.
C) is set off against any remaining balance in the goodwill on acquisition account, with any remaining amount distributed as dividends to the new owners.
D) is to be recorded in the consolidated financial statements for the period of the year that the parent had control of the subsidiary.
E) is to be recorded in the parent's financial statements for the period of the year that the parent had control of 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 is because the subsidiary is part of the consolidated group during the period the parent had control, and its results should be included in the consolidated financial statements. Therefore, option D is the best choice.

Question 5

Two common approaches to accounting for acquisition of additional shares in a subsidiary include:
A) The combined tranche method and the single-date method.
B) The step-by-step method and the combined tranche method.
C) The step-by-step method and the single-date method.
D) The step-by-step method and the equity method.
E) The equity method and the single-date method.

Accepted Answer

The two common approaches for accounting for the acquisition of additional shares in a subsidiary are the step-by-step method and the single-date method. The step-by-step method involves adjusting the carrying value of the existing investment to fair market value on the date of the acquisition, recognizing the fair value of any additional consideration paid, and adjusting for any non-controlling interest. The single-date method involves recognizing the fair value of the entire consideration paid for the additional shares and adjusting for any non-controlling interest. The combined tranche method and the equity method are alternate methods that may be used in certain circumstances, but are not as commonly utilized.

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.

At the time of the sale of the shares, the parent was holding the investment in subsidiary at what amount, in its own books?
A) $450,000.
B) $700,000.
C) $950,000.
D) $1,450,000.
E) Cannot be determined from the information given.

Accepted Answer

The parent received $1,200,000 for the shares, which is not equal to the carrying value of the investment of $950,000 (as seen in the consolidation adjusting entries). This means that the investment had to be recorded at a value higher than $1,200,000 in the parent's books. The only option that fits this criteria is B, $700,000, as it still allows for a gain of $500,000 (the difference between the sale price and the carrying value in the consolidation adjusting entries).

Question 7

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 8

Under the step-by-step method, 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:

Accepted Answer

Revaluing the subsidiary's assets, liabilities and contingent liabilities to fair value at each acquisition date under the step-by-step method is a requirement under AASB 3 Business Combinations and does not mean that the acquirer has elected to apply the revaluation method for measuring assets under AASB 116 Property, Plant and Equipment.

Question 9

Under the step-by-step 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 answer of Under the step-by-step method, the aggregate costs...

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.

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:
A) ($250,000).
B) $350,000.
C) $750,000.
D) $1,200,000.
E) Cannot be determined from the information given.

Accepted Answer

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

Question 11

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 12

When additional shares in a subsidiary are acquired, AASB 3 requires each acquisition to be accounted for separately:

Accepted Answer

AASB 3 requires each acquisition of additional shares in a subsidiary to be accounted for separately. This ensures that the accounting treatment reflects the economic reality of each individual transaction.

Question 13

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

This is true as control can be lost due to various reasons such as bankruptcy, legal judgments, management disagreements, etc. even if the ownership levels remain unchanged.

Question 14

AASB 127 "Consolidated and Separate 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

AASB 127 requires 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, and therefore the statement is true.

Question 15

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 16

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

This is true under the accounting standards for Consolidated Financial Statements. When control over a subsidiary is lost, the parent entity is required to derecognise the individual assets, liabilities, and equity associated with that subsidiary, including any non-controlling interest.

Question 17

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 18

The consolidated balance sheet at year-end, in a period when the parent sold its interests in a subsidiary:
A) includes the assets and liabilities of the former subsidiary, to ensure that the opening balances reconcile.
B) does not include the assets and liabilities of the former subsidiary, if the subsidiary is no longer controlled by the parent.
C) reports the investment account at cost less proceeds of the sale.
D) includes the assets and liabilities of the former subsidiary, proportionately adjusted for the proceeds of sale.
E) None of the given answers.

Accepted Answer

When the parent sells its interests in a subsidiary, it no longer controls the subsidiary and therefore should not include the assets and liabilities of the former subsidiary in the consolidated balance sheet. The investment account should be reported at cost less proceeds of the sale in the consolidated balance sheet.

Question 19

Under the single-date method, goodwill would be recognised.
A) at the point in time when the parent entity ultimately gains control of the subsidiary.
B) at the time when each additional acquisition of shares is made.
C) as part of equity in the parent's books.
D) at the point in time when the subsidiary shareholders acknowledge that they will sell their shareholdings to the parent entity.
E) None of the given answers.

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 regards the business combination as a single event that occurs at a specific point in time, which is the date when control is obtained.

Question 20

The required method (according to AASB 3) of accounting for the acquisition of additional shares in a subsidiary is the single-date method.

Accepted Answer

The required method for accounting for the acquisition of additional shares in a subsidiary is the cumulative method, not the single-date method.

Quiz 32: Further Consolidation Issues Iv: Accounting for Changes in the Deg

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.

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. The 'Cr Profit after tax' entry above represents:

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.

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

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

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:

Under the step-by-step method, 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:

Under the step-by-step 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.

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.

When additional shares in a subsidiary are acquired, AASB 3 requires each acquisition to be accounted for separately:

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.

AASB 127 "Consolidated and Separate 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.

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

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.

The consolidated balance sheet at year-end, in a period when the parent sold its interests in a subsidiary:

Under the single-date method, goodwill would be recognised.

The required method (according to AASB 3) of accounting for the acquisition of additional shares in a subsidiary is the single-date method.