Question 1

Variable returns from an investee include:

Accepted Answer

The answer of Variable returns from an investee include:
...

Question 2

In the context of control, which of the following is correct regarding 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 3

A group of entities comprised of Kerri Limited (parent entity), Georgia Limited (subsidiary entity) and Emily Limited (subsidiary entity) have the following inventories balances.

Which of the following amounts is shown as the consolidated inventories balance in the consolidated financial statements?

Accepted Answer

The answer of A group of entities comprised of Kerri...

Question 4

Kowloon Limited is an entity listed in Hong Kong. Kowloon Limited holds a 100% investment in Aussie Pty Ltd, an Australian based company, who in turn holds a 90% interest in Skippy Pty Ltd. Aussie Pty Ltd and the Aussie group (comprising Aussie and Skippy) are both non-reporting entities. Which of the following statements is correct?

Accepted Answer

Aussie Pty Ltd will not be required to prepare consolidated financial statements as they are a non-reporting entity, which exempts them from the consolidation requirements that typically apply to reporting entities.

Question 5

Rights to variable returns from an investee include:

Accepted Answer

All of the options are correct. The rights to variable returns from an investee can come from economies of scale, remuneration from provision of services, or returns from denying or regulating access to a subsidiary's assets.

Question 6

Paragraph 9 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities provides the following examples of situations where it is necessary to disclose significant judgements and assumptions in relation to subsidiaries

Accepted Answer

All of the options are correct. Significant judgements and assumptions must be disclosed in situations where an entity holds more than half of the voting rights in another entity but does not control it, where an entity controls another entity but holds less than half of the voting rights, and where an entity is acting as an agent or principal. This ensures that users of the financial statements are aware of the potential impact on the financial position and performance of the reporting entity.

Question 7

The disclosure requirements in consolidated financial statements are included in the following accounting standards:

Accepted Answer

AASB 12/IFRS 12 specifically addresses the disclosure requirements for interests in other entities, including subsidiaries, joint arrangements, associates, and unconsolidated structured entities, which are relevant for consolidated financial statements.

Question 8

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

Accepted Answer

The correct term for the process of preparing the combined financial statements of a group of entities is consolidation. Aggregation refers to the process of combining multiple values into a single value, but it is not specific to financial statements. Combination is a term that could be used, but consolidation is the more common and precise term. Accumulation refers to the gradual increase or buildup of something, and is not related to the preparation of financial statements.

Question 9

According to AASB 10/IFRS 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.

Accepted Answer

The answer of According to AASB 10/IFRS 10 Consolidated Financial...

Question 10

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

Accepted Answer

Non-controlling interest refers to the portion of equity in a subsidiary that is not owned by the parent company, also known as minority interest. This interest is typically shown on the balance sheet as a separate line item and represents the proportion of the subsidiary's net assets that are owned by outside shareholders.

Question 11

Paragraph B23 of AASB 10/IFRS 10 Consolidated Financial Statements provides some factors to consider in assessing whether the rights over an investee are substantive:

Accepted Answer

All of the options (A, B, C) provided in Paragraph B23 of AASB 10/IFRS 10 Consolidated Financial Statements are correct factors to consider in assessing whether the rights over an investee are substantive. Therefore, the best choice is D, which includes all the options.

Question 12

The process of preparing consolidated financial statements requires that:

Accepted Answer

The process of preparing consolidated financial statements requires that the individual financial statements of the parent company and all its subsidiaries use uniform accounting policies for like transactions and other events in similar circumstances. Additionally, the subsidiaries must prepare, if practicable, financial information as of the same date and for the same period as the financial statements of the parent. This ensures consistency and accuracy in the consolidation process.

Question 13

When deciding whether or not one entity controls another 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 14

Where the financial statements of a subsidiary are as of a date that differs from that of the parent, the group must disclose:

Accepted Answer

The answer of Where the financial statements of a subsidiary...

Question 15

According to paragraph 10 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities, an entity shall disclose information that enables users of its consolidated financial statements to understand:

Accepted Answer

Paragraph 10 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities requires an entity to disclose both the composition of the group and the interest that non-controlling interests have in the group's activities and cash flows. Therefore, option D is the best choice.

Question 16

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:

Accepted Answer

The loan contract does not establish a parent-subsidiary relationship between Eastpac Bank and Alexandra Limited. The fact that Eastpac has imposed certain restrictions on Alexandra's borrowing does not mean that it has control over other activities of the company or shares ownership in it.

Question 17

Juliet Ltd is a listed public company and has an 60% controlling interest in Marley Pty Ltd. Marley Pty Ltd is the parent of Butterscotch Pty Ltd. In which of the following situations will Marley Pty Ltd not be required to prepare consolidated financial statements?

Accepted Answer

The answer of Juliet Ltd is a listed public company...

Question 18

An agent is:

Accepted Answer

The answer of An agent is:
...

Question 19

The process of preparing consolidated financial statements requires that:

Accepted Answer

The answer of The process of preparing consolidated financial statements...

Question 20

Protective rights include:

Accepted Answer

All of the options are correct. Protective rights are various contractual provisions included in loan agreements, shareholder agreements or other documents that aim to protect the interests of the lender or investor. These rights can be used to mitigate the risk of the borrower or investee defaulting on their obligations or to guarantee a certain level of control or profit. Examples of protective rights include covenants restricting the use of assets, prohibitions on certain transactions, change of control clauses, veto rights on key decisions, and collateral pledges.

Quiz 26: Consolidation: Controlled Entities

Variable returns from an investee include:

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

Rights to variable returns from an investee include:

Paragraph 9 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities provides the following examples of situations where it is necessary to disclose significant judgements and assumptions in relation to subsidiaries

The disclosure requirements in consolidated financial statements are included in the following accounting standards:

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

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

Paragraph B23 of AASB 10/IFRS 10 Consolidated Financial Statements provides some factors to consider in assessing whether the rights over an investee are substantive:

The process of preparing consolidated financial statements requires that:

When deciding whether or not one entity controls another entity:

Where the financial statements of a subsidiary are as of a date that differs from that of the parent, the group must disclose:

According to paragraph 10 of AASB 12/IFRS 12 Disclosure of Interests in Other Entities, an entity shall disclose information that enables users of its consolidated financial statements to understand:

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:

Juliet Ltd is a listed public company and has an 60% controlling interest in Marley Pty Ltd. Marley Pty Ltd is the parent of Butterscotch Pty Ltd. In which of the following situations will Marley Pty Ltd not be required to prepare consolidated financial statements?

An agent is:

The process of preparing consolidated financial statements requires that:

Protective rights include: