Accounting for Group Structures
Final Exam
Course Introduction
Accounting for Group Structures explores the principles and practices involved in preparing and analyzing consolidated financial statements for corporate groups, including parent-subsidiary relationships, joint ventures, and associates. The course covers the regulatory requirements and accounting standards governing group accounts, with emphasis on the identification and treatment of investments, elimination of intra-group transactions, calculation of goodwill, non-controlling interests, and foreign operations. Students develop the skills necessary to interpret and prepare consolidated accounts, address complex group scenarios, and understand the financial implications of group structures for decision-making and reporting.
Recommended Textbook
Accounting for Corporate Combinations and Associations 8th Australian Edition by Neal Arthur
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Chapters
Questions
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Chapter 1: Text Objectives and Introduction to Consolidation
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Q1) If a company has control over the financial policies of another entity,it is deemed to have control over the operating policies.
A)True
B)False
Answer: False
Q2) A subsidiary may be:
A) a company.
B) a partnership.
C) an individual.
D) all of the above.
Answer: D
Q3) Investments in associates (other than those classified as held for sale)will be measured at cost in the consolidated financial statements.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Principles of Consolidation
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Q1) Dividends payable by a subsidiary on an ex-dividend basis will be ignored for the purposes of consolidation.
A)True
B)False
Answer: True
Q2) There is no limit to the amount of impairment loss write-down of the assets of a cash-generating unit (CGU).
A)True
B)False
Answer: False
Q3) Where a subsidiary has declared but not paid a dividend on a cum-dividend basis on acquisition date,the amount of the dividend must be recorded by the parent company as:
A) revenue.
B) a reduction in the cost of the investment.
C) a reduction in the amount of goodwill on consolidation.
D) none of the above,
Answer: A
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Page 4
Chapter 3: Fair Value Adjustments and Tax Effects
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Q1) In the year ended June 30 20X7,Woof Ltd acquired the assets and assumed the liabilities of the Doggie Biscuits operation from Fido Ltd for $10 000 000.At the date of acquisition,the fair values of the net separable assets and liabilities of the operation were $8 000 000 and $1 000 000 respectively.Based on this information,the transaction has resulted in:
A) a business combination of Woof Ltd and Doggie Biscuits.
B) the acquisition of certain assets and liabilities, which is not a business combination since Doggie Biscuits is not a business but simply part of the Fido Ltd business.
C) the acquisition of certain assets and liabilities, which is not a business combination since Doggie Biscuits is not managed to provide a return to investors but only to provide a return to Fido Ltd.
D) none of the above.
Answer: A
Q2) All assets acquired in a business combination must be recognised at fair value.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Intra-Group Transactions
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Q1) A Ltd sells inventory to its parent P Ltd for $60 000 representing a mark-up of 50% on cost.At year-end,3/4 of the goods are still held by P Ltd.The unrealised profit to be eliminated on consolidation is:
A) $20 000.
B) $15 000.
C) $30 000.
D) $10 000.
Q2) A consolidation adjustment will have a tax effect if:
A) it adjusts the carrying amount of an asset.
B) it adjusts the carrying amount of a liability.
C) it recognises assets and liabilities not recorded in accounting records of group companies.
D) all of the above.
Q3) Where service fees are accrued by group members,there is no tax effect on consolidation.
A)True
B)False
Q4) Explain why it is necessary to adjust unrealised profit in opening inventory on consolidation.
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Chapter 5: Non-Controlling Interest
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Q1) If A owns 80% of B and B owns 75% of C,A's ownership interest in B and C is characterised as direct.
A)True
B)False
Q2) Where the shareholder's equity of a subsidiary is negative:
A) the NCI will be included as part of the parent interests.
B) the NCI will be shown as a separate amount in the consolidated accounts.
C) the NCI is ignored for consolidation purposes.
D) none of the above.
Q3) Discuss the effect of intragroup transactions on the calculation of the NCI share of subsidiary profits and retained earnings.
Q4) Why does AASB 3 allow a choice in the measurement of NCI at the date of acquisition?
Q5) The measurement of the NCI allocation will be based on the subsidiary company's equity account balances.
A)True
B)False
Q6) Is the proprietary concept of consolidation consistent with the proportional consolidation method?
Page 7
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Chapter 6: Partly-Owned Subsidiaries: Indirect
Non-Controlling Interest
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Q1) Is the proportionate interest goodwill method consistent with not allocating goodwill impairment losses against the indirect NCI?
Q2) A sub-subsidiary is:
A) a subsidiary of a parent company.
B) a subsidiary of a subsidiary company.
C) either A or B.
D) none of the above.
Q3) When a parent does not have an ownership interest in a subsidiary the NCI is 100%.
A)True
B)False
Q4) Explain why indirect ownership interests are not relevant to determining control in a tiered corporate group.
Q5) Circular shareholdings are allowed under the Corporations Act. A)True
B)False
Q6) Why is the indirect NCI not entitled to any share of pre-acquisition equity under the multiple consolidation method?
Q7) Discuss the disadvantages of the sequential consolidation method.
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Chapter 7: Consolidated Cash Flow Statements
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Q1) Cash flows resulting from foreign currency transactions are translated at the exchange rates applicable at the balance sheet date.
A)True
B)False
Q2) A company holds $100 000 in a term deposit account as an interest-generating investment.For purposes of the statement of cash flows,the term deposit will be classified as:
A) a cash equivalent.
B) an investment.
C) either a cash equivalent or an investment.
D) none of the above.
Q3) The purpose of holding a cash equivalent is irrelevant for the classification in the statement of cash flows.
A)True
B)False
Q4) Assets owned by a subsidiary acquired during the year are treated as negative financing cash flows in a consolidated statement of cash flows.
A)True B)False
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Chapter 8: Accounting for Joint Arrangements
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Q1) An investor in a joint operation is required to account for the investment in accordance with AASB 11.
A)True
B)False
Q2) The one-line method of accounting for interests in jointly controlled entities is appropriate because:
A) venturers have joint control.
B) venturers have control.
C) venturers have significant influence.
D) none of the above.
Q3) The line-by-line method of accounting for joint venture categories of jointly controlled operations and jointly controlled assets is the same as the proportionate consolidation method of accounting for jointly controlled entities.
A)True
B)False
Q4) For a joint venture to be recognised under AASB 11,there must be a contractual arrangement.
A)True B)False
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Chapter 9: Accounting for Associates and Joint Ventures: the Equity Method
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Q1) Ownership of 20% or more of voting shares leads to a presumption of significant influence.
A)True
B)False
Q2) Where an associate makes profits subsequent to the investor's acquisition of the equity investment,a deferred tax liability will be required to be recognised.
A)True
B)False
Q3) Indicia of the position that an investor does NOT have the power to significantly influence the operating,investment and financial policies of an investee include:
A) representation on the investee's board of directors by the investor or by a party nominated by the investor through which the investor is able to directly or indirectly participate in investee policy decision making.
B) operational interrelationships between the investor and the investee.
C) technological interrelationships between the investor and the investee.
D) none of the above.
Q4) Discuss the basis of the equity carrying amount of the investment.
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Chapter 10: Translation and Consolidation of Foreign Currency Financial Statements
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Q1) Under current accounting standards,a company may choose between the current rate and temporal methods of translating foreign currency financial statements.
A)True
B)False
Q2) Where the functional currency of a foreign operation is not that of an Australian company,in translating the financial statements of that operation into the presentation currency of the Australian company:
A) foreign currency monetary items are translated at the closing rate and non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
B) foreign currency monetary items and non-monetary items are translated at the closing rate.
C) foreign currency monetary items and non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
D) none of the above.
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12
Chapter 11: Segment Reporting by Diversified Entities
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Q1) Outline the requirements to report information on geographical segments under current accounting standards.
Q2) A segment which does not reach any of the materiality thresholds can nevertheless be:
A) designated as a reportable segment.
B) combined with other segments.
C) not reported separately.
D) all of the above.
Q3) In reporting segment information,an entity must provide a reconciliation of:
A) reportable segment sales revenue to total revenue.
B) reportable segment profit or loss before tax to total profit or loss before tax.
C) reportable segment assets and liabilities to total assets and liabilities.
D) all of the above.
Q4) An immaterial segment is never disclosed despite the 75% rule.
A)True
B)False
Q5) How might management be able to conceal segment information under the 'management approach' to identifying reportable segments?
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