Question 1

Which of the following is not one of the factors in AASB 3/IFRS 3 Business Combinations that guide the identification of the acquirer where 2 companies combine to form a new company?
A) The entity that has the smaller fair value.
B) The entity that has a significantly greater fair value.
C) The entity whose management is able to dominate the business combination.
D) The entity that gives up the cash or other assets where equity instruments are exchanged for cash or other assets.

Accepted Answer

AASB 3/IFRS 3 Business Combinations identifies several factors that guide the identification of the acquirer in a business combination. These include the entity that: has the greater portion of voting rights; has the ability to govern the financial and operating policies of the combined entity; has the greater proportion of senior executives and directors in the combined entity; and has the significant influence over the combined entity. The entity with the smaller fair value is not considered a factor in determining the acquirer.

Question 2

One of the major problems with control where an investor owns less than a majority of the investee's voting shares is the issue of temporary control.

Accepted Answer

When an investor owns less than a majority of the investee's voting shares, they may have temporary control through special agreements or arrangements, but the investee's other shareholders can ultimately outvote them on important decisions. This can make it difficult for the investor to implement their desired strategies and make long-term plans for the investee.

Question 3

According to AASB 12/IFRS 12 Disclosure of Interests in Other Entities, an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity is known as a:
A) controlling entity.
B) structured entity.
C) dominant entity.
D) rights entity.

Accepted Answer

As per AASB 12/IFRS 12, an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity is known as a structured entity. This type of entity may include special purpose vehicles, trusts, or other off-balance sheet arrangements.

Question 4

Entities can only classify investments in other entities as subsidiaries if they actually exercise control over the financial and operating policies of an entity.

Accepted Answer

The answer of Entities can only classify investments in other...

Question 5

Where a non-controlling interest exists in a subsidiary, AASB 12 /IFRS 12 Disclosure of Interests in Other Parties requires parent entities to disclose which of the following for each such subsidiary? I Summarised financial information about each subsidiary.
II The proportion of ownership interests held by non-controlling interests.
III If the subsidiary is not wholly owned, the names of all other members.
IV The country of incorporation of subsidiaries.
A) I, II and IV only
B) II, III and IV only
C) I and IV only
D) I, II, III and IV

Accepted Answer

The standard requires the disclosure of the proportion of ownership interests held by non-controlling interests as well as the country of incorporation of subsidiaries. Summarised financial information is also required to be disclosed. The names of all other members are not required to be disclosed. Therefore, the correct options are I, II and IV only.

Question 6

Control is the criterion for determining whether a parent-subsidiary relationship exists.

Accepted Answer

Control is the primary criterion used to determine whether a parent-subsidiary relationship exists. Control is typically defined as the power to direct or govern the management and policies of another entity, and it may be evidenced by factors such as ownership of voting stock, appointment of key officers, or the ability to veto major business decisions of the subsidiary.

Question 7

Where an entity directly holds more than 50% of the voting rights of another entity, they are presumed to have power in accordance with AASB 10/IFRS 10 Consolidated Financial Statements.

Accepted Answer

According to AASB 10/IFRS 10 Consolidated Financial Statements, an entity is presumed to have power when it directly holds more than 50% of the voting rights of another entity.

Question 8

An entity can control another entity with an ownership interest of less than 50%, but only if there is a legally-binding contract in place between all investors that passes control to the entity.

Accepted Answer

The answer of An entity can control another entity with...

Question 9

Control is defined within AASB 10/IFRS 10 Consolidated Financial Statements as the ability to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Accepted Answer

Control under AASB 10/IFRS 10 is defined 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, not just governing policies.

Question 10

The consolidation process involves making adjustments to the individual financial statements and ledger accounts of the entities within the group.

Accepted Answer

The answer of The consolidation process involves making adjustments to...

Question 11

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?
A) Aussie Pty Ltd will be required to prepare consolidated financial statements as the ultimate Australian parent.
B) Aussie Pty Ltd will not be required to prepare consolidated financial statements as they are a non-reporting entity.
C) Aussie Pty Ltd will be required to prepare consolidated financial statements only if directed to do so by ASIC.
D) Aussie Pty Ltd will not be required to prepare consolidated financial statements as Kowloon is a listed foreign entity.

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 12

Juliet Ltd is a listed public company and has a 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?
A) If Marley Pty Ltd prepares separate financial statements that comply with IFRS.
B) If the other owners of Marley Pty Ltd have consented to the non-preparation of consolidated financial statements.
C) Where it is likely that there are external users dependant on the information.
D) Marley Pty Ltd would never be required to prepare consolidated financial statements.

Accepted Answer

If the other owners of Marley Pty Ltd have consented to the non-preparation of consolidated financial statements, Marley Pty Ltd may not be required to prepare them, provided other conditions are also met.

Question 13

Which of the following is not included in the definition of an investment entity as per IFRS 10 Consolidated Financial Statements?
A) Measures and evaluates the performance of substantially all of its investments on a cost basis.
B) Measures and evaluates the performance of substantially all of its investments on a fair value basis.
C) Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation or investment income.
D) Obtains funds from one or more investors for the purpose of providing those investors with investment management services.

Accepted Answer

The definition of an investment entity according to IFRS 10 includes an entity that measures and evaluates the performance of substantially all of its investments on a fair value basis, not on a cost basis.

Question 14

A subsidiary is defined in AASB 10/IFRS 10 Consolidated Financial Statements as a company that is controlled by another entity.

Accepted Answer

The answer of A subsidiary is defined in AASB 10/IFRS...

Question 15

Which of the following statements is correct?
A) The legal acquirer under AASB 3/IFRS 3 and the accounting acquirer under AASB 10/IFRS 10 do not have to be the same entity.
B) The entity identified under AASB 10/IFRS 10 as the parent will be the acquirer under AASB 3/IFRS 3.
C) The legal acquirer is determined under AASB 3/IFRS 3 as the entity that issues the equity instruments.
D) The accounting acquirer is the entity that becomes the controlling entity.

Accepted Answer

The answer of Which of the following statements is correct?
A)...

Question 16

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.
A) I and II only
B) I, II and III only
C) I, II and IV only
D) I, II, III and IV

Accepted Answer

A parent entity is exempt from presenting consolidated financial statements if it is a wholly owned subsidiary or a partly owned subsidiary with no objection from other owners, and it is not publicly traded or in the process of issuing public securities.

Question 17

The financial statements of a group are referred to as consolidated financial statements.

Accepted Answer

Consolidated financial statements combine the financial statements of all subsidiaries of a parent company into a single set of financial statements for the entire group.

Question 18

AASB 10/IFRS 10 Consolidated Financial Statements requires that control be non-shared.

Accepted Answer

AASB 10/IFRS 10 defines control as having the power to govern the financial and operating policies of an entity, and requires that control be non-shared in order for an entity to be considered a subsidiary and included in the consolidated financial statements of its parent company.

Question 19

Where an entity controls another entity but holds less than half of the other entity's voting rights, AASB 12/IFRS 12 Disclosure of Interests in Other Entities, requires which of the following disclosures be made?
A) The reasons why the ownership of the investee does not constitute control.
B) The nature of the relationship between the investor and investee.
C) The significant judgements and assumptions it has made in determining the nature of the interest in the other entity.
D) The amount of any repayments of borrowings between the investor and investee during the period.

Accepted Answer

The answer of Where an entity controls another entity but...

Question 20

Two entities A Limited and B Limited together form a third entity, C Limited. C Limited acquires A Limited and B Limited. In this situation, AASB 3/IFRS 3 Business Combinations, adjudges that:
A) A Limited and B Limited cease to exist and C Limited is the acquirer.
B) the combined A Limited and B Limited, is the acquirer of C Limited.
C) C Limited is considered to be the acquirer.
D) C Limited is not to be considered to be the acquirer.

Accepted Answer

Under AASB 3/IFRS 3 Business Combinations, when a new entity is formed to acquire two or more other entities, the new entity (C Limited in this case) is not considered to be the acquirer. Instead, the standard requires identification of one of the combining entities as the acquirer based on the terms of the combination and other factors.

Quiz 9: Consolidation: Controlled Entities

Which of the following is not one of the factors in AASB 3/IFRS 3 Business Combinations that guide the identification of the acquirer where 2 companies combine to form a new company?

One of the major problems with control where an investor owns less than a majority of the investee's voting shares is the issue of temporary control.

According to AASB 12/IFRS 12 Disclosure of Interests in Other Entities, an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity is known as a:

Entities can only classify investments in other entities as subsidiaries if they actually exercise control over the financial and operating policies of an entity.

Control is the criterion for determining whether a parent-subsidiary relationship exists.

Where an entity directly holds more than 50% of the voting rights of another entity, they are presumed to have power in accordance with AASB 10/IFRS 10 Consolidated Financial Statements.

An entity can control another entity with an ownership interest of less than 50%, but only if there is a legally-binding contract in place between all investors that passes control to the entity.

Control is defined within AASB 10/IFRS 10 Consolidated Financial Statements as the ability to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The consolidation process involves making adjustments to the individual financial statements and ledger accounts of the entities within the group.

Juliet Ltd is a listed public company and has a 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?

Which of the following is not included in the definition of an investment entity as per IFRS 10 Consolidated Financial Statements?

A subsidiary is defined in AASB 10/IFRS 10 Consolidated Financial Statements as a company that is controlled by another entity.

Which of the following statements is correct?

The financial statements of a group are referred to as consolidated financial statements.

AASB 10/IFRS 10 Consolidated Financial Statements requires that control be non-shared.

Where an entity controls another entity but holds less than half of the other entity's voting rights, AASB 12/IFRS 12 Disclosure of Interests in Other Entities, requires which of the following disclosures be made?

Two entities A Limited and B Limited together form a third entity, C Limited. C Limited acquires A Limited and B Limited. In this situation, AASB 3/IFRS 3 Business Combinations, adjudges that: