Question 1

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 2

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

In a bargain purchase, where the acquisition cost is less than the fair value of the net assets acquired, AASB 3 requires the acquirer to recognise the excess (gain) in profit or loss, not as goodwill.

Question 3

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 in a business combination, the excess that remains after the fair value of the net assets acquired is deducted from the consideration transferred is recognized in profit or loss of the acquirer on acquisition date. This is in accordance with International Financial Reporting Standards (IFRS) 3 Business Combinations. Therefore, the statement is true.

Question 4

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

Consolidated financial statements only reflect transactions with parties external to the economic entity. Transactions between the parent entity and its controlled entities are eliminated in the consolidation process.

Question 5

AASB 10 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 10 requires the consolidation of financial statements by combining the financial statements of the parent and its subsidiaries line by line by adding together like items of assets, liabilities, income, and expenses. However, it does not mention combining these elements "in proportion to the degree of ownership" for consolidation purposes. Instead, it requires full consolidation of these items, not proportional consolidation, and equity balances of the subsidiaries are eliminated against the parent's investment in those subsidiaries, not added.

Question 6

It is possible for one entity to control another entity under the AASB 10 definition without the controlling entity having any equity-ownership interest in the other entity.

Accepted Answer

AASB 10 defines control as the power to govern the financial and operating policies of an entity to obtain benefits from its activities. This power could be achieved through ownership of voting rights or through other means such as contractual arrangements, giving a parent company control over a subsidiary even without any equity ownership.

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 begins by removing the investment account and replacing it with the assets and liabilities of the subsidiary.

Question 8

Non-controlling interests (minority interests)are defined as the equity in the parent company that is not provided by the group shareholders.

Accepted Answer

Non-controlling interests (minority interests) are defined as the portion of equity ownership in a subsidiary not attributable to the parent company, representing the equity in subsidiaries held by shareholders outside of the group that controls the company.

Question 9

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

Accepted Answer

The consolidation process involves combining the financial statements of individual entities to create a single set of financial statements for the group as a whole. This process includes making adjustments to eliminate intercompany transactions and balances, as well as to ensure that the financial statements are presented in a consistent manner.

Question 10

Where separate entities in a group do not apply the same accounting methods,AASB 10 Consolidated Financial Statements prescribes adjustments to be made on consolidation to remove the effects of different accounting policies.

Accepted Answer

AASB 10 Consolidated Financial Statements does prescribe adjustments to be made on consolidation to remove the effects of different accounting policies.

Question 11

Control is defined in AASB 10 as the 'capacity to manage the policies of another entity'.

Accepted Answer

AASB 10 defines control as having power over the investee, exposure or rights to variable returns from involvement with the investee, and the ability to use power to affect those returns.

Question 12

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 10.

Accepted Answer

AASB 10 defines effective control as "the power to direct the relevant activities of an investee that significantly affect the investee's returns". Merely owning more than 50% of the capital of another entity does not necessarily provide this power and therefore does not necessarily constitute effective control.

Question 13

'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 with changes in governance or operational decisions that significantly impact the subsidiary's financial and operating policies.

Question 14

AASB 10 Consolidated 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 effects of different reporting periods.

Accepted Answer

The answer of AASB 10 Consolidated Financial Statements permits the...

Question 15

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

Accepted Answer

This is the definition of a subsidiary.

Question 16

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 17

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

Accepted Answer

Goodwill is an intangible asset that represents the excess of the purchase price over the identifiable assets acquired and liabilities assumed in a business combination. Therefore, goodwill arises at the acquisition date when the purchase price exceeds the identifiable assets and liabilities of the acquired business.

Question 18

The consolidation concept adopted in AASB 10 is to include all the assets and liabilities of the parent entity and subsidiaries in the consolidation and to treat non-controlling interests as part of the equity of the group.

Accepted Answer

This statement accurately describes the consolidation concept adopted in AASB 10.

Question 19

Under AASB 10 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

Under AASB 10, parent companies are required to present consolidated financial statements that include all subsidiaries, without the option to present separate subsets of consolidated accounts for different parts of the group.

Question 20

AASB 10 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 10 requires the parent company to have control over another entity for consolidation purpose. Without control, the entity cannot be consolidated into the group accounts.

Quiz 27: Accounting for Group Structures