Question 1

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: \(\begin{array}{|l|r|r|r|}
\hline & \text { Parent Inc } & \text { Sub Inc } & \text { Sub Inc } \
\hline & \text { (caryying value) } & \begin{array}{r}
\text { (carrying } \
\text { value) }
\end{array} & \text { (fair value) } \\hline \text { Cash } & \$ 180,000 & \$ 36,000 & \$ 36,000 \
\hline \text { Accounts Receivable } & \$ 100,000 & \$ 40,000 & \$ 40,000 \
\hline \text { Inventory } & \$ 60,000 & \$ 24,000 & \$ 27,000 \\hline \text { Plant and Equipment (net) } & \$ 200,000 & \$ 80,000 & \$ 93,000 \
\hline \text { Goodwill } & \$- & \$ 8,000 & \
\hline \text { Trademark } & \$- & \$ 12,000 & \$ 15,000 \\hline \text { Total Assets } & \$ \mathbf{5 4 0 , 0 0 0} & \$ 200,000 & \
\hline \text { Current Liabilities } & \$ 80,000 & \$ 50,000 & \$ 50,000 \
\hline \text { Bonds Payable } & \$ 320,000 & \$ 20,000 & \$ 24,000 \\hline \text { Common Shares } & \$ 90,000 & \$ 80,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 50,000 \
\hline \text { Total Liabilities and Equity } & \$ 540,000 & \$ 200,000 \
\hline
\end{array}\) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, what amount would appear in the Non-Controlling Interest (NCI) Account on the Consolidated Balance Sheet if the fair value enterprise (FVE) method were used?
A) $45,000
B) $27,400
C) $26,000
D) Nil

Accepted Answer

The answer of Parent Inc. and Sub Inc. had the...

Question 2

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: \(\begin{array}{|l|r|r|r|}
\hline & \text { Parent Inc } & \text { Sub Inc } & \text { Sub Inc } \
\hline & \text { (caryying value) } & \begin{array}{r}
\text { (carrying } \
\text { value) }
\end{array} & \text { (fair value) } \\hline \text { Cash } & \$ 180,000 & \$ 36,000 & \$ 36,000 \
\hline \text { Accounts Receivable } & \$ 100,000 & \$ 40,000 & \$ 40,000 \
\hline \text { Inventory } & \$ 60,000 & \$ 24,000 & \$ 27,000 \\hline \text { Plant and Equipment (net) } & \$ 200,000 & \$ 80,000 & \$ 93,000 \
\hline \text { Goodwill } & \$- & \$ 8,000 & \
\hline \text { Trademark } & \$- & \$ 12,000 & \$ 15,000 \\hline \text { Total Assets } & \$ \mathbf{5 4 0 , 0 0 0} & \$ 200,000 & \
\hline \text { Current Liabilities } & \$ 80,000 & \$ 50,000 & \$ 50,000 \
\hline \text { Bonds Payable } & \$ 320,000 & \$ 20,000 & \$ 24,000 \\hline \text { Common Shares } & \$ 90,000 & \$ 80,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 50,000 \
\hline \text { Total Liabilities and Equity } & \$ 540,000 & \$ 200,000 \
\hline
\end{array}\) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, the assets section of Parent's consolidated balance sheet on the date of acquisition would total to what amount under the fair value enterprise method?
A) $552,000
B) $639,200
C) $651,000
D) $659,000

Accepted Answer

The answer of Parent Inc. and Sub Inc. had the...

Question 3

In the event of a negative acquisition differential, under what circumstances is it still possible to have positive goodwill?
A) It is not possible; once there is a negative acquisition differential, the result is negative goodwill.
B) If the fair values of the subsidiary's net assets are less than their carrying amounts and if the total consideration is greater than the fair value of the subsidiary's identifiable nets assets, there will be positive goodwill.
C) If the total consideration exceeds the carrying value of the subsidiary's identifiable nets assets, there will be positive goodwill.
D) If the carrying values of the subsidiary's net assets are less than their fair values and if the total consideration is greater than the carrying amount of the subsidiary's identifiable nets assets, there will be positive goodwill.

Accepted Answer

The answer of In the event of a negative acquisition...

Question 4

If the non-controlling interest at acquisition is based on the fair value of the subsidiary's identifiable net assets, which consolidation method is being applied?
A) Proportionate consolidation method
B) Parent company method
C) Fair value enterprise method
D) Identifiable net assets method.

Accepted Answer

The identifiable net assets method is the consolidation method where the non-controlling interest is based on the fair value of the subsidiary's identifiable net assets. This method is also known as the acquisition method or the purchase method.

Question 5

When a contingent consideration arising from a business combination is classified as a liability, how is any difference between the original estimate of the amount to be paid and the actual amount paid accounted for if the difference arises due to a change in circumstances?
A) As an adjustment to the consideration paid for the subsidiary.
B) As an adjustment to an estimate included in the determination of net income.
C) As a direct adjustment to consolidated retained earnings.
D) As an adjustment to consolidated contributed surplus.

Accepted Answer

When a contingent consideration from a business combination is classified as a liability and there's a difference due to a change in circumstances, it's treated as an adjustment to an estimate, affecting net income. This reflects the change in the fair value of the contingent consideration.

Question 6

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: \(\begin{array}{|l|r|r|r|}
\hline & \text { Parent Inc } & \text { Sub Inc } & \text { Sub Inc } \
\hline & \text { (caryying value) } & \begin{array}{r}
\text { (carrying } \
\text { value) }
\end{array} & \text { (fair value) } \\hline \text { Cash } & \$ 180,000 & \$ 36,000 & \$ 36,000 \
\hline \text { Accounts Receivable } & \$ 100,000 & \$ 40,000 & \$ 40,000 \
\hline \text { Inventory } & \$ 60,000 & \$ 24,000 & \$ 27,000 \\hline \text { Plant and Equipment (net) } & \$ 200,000 & \$ 80,000 & \$ 93,000 \
\hline \text { Goodwill } & \$- & \$ 8,000 & \
\hline \text { Trademark } & \$- & \$ 12,000 & \$ 15,000 \\hline \text { Total Assets } & \$ \mathbf{5 4 0 , 0 0 0} & \$ 200,000 & \
\hline \text { Current Liabilities } & \$ 80,000 & \$ 50,000 & \$ 50,000 \
\hline \text { Bonds Payable } & \$ 320,000 & \$ 20,000 & \$ 24,000 \\hline \text { Common Shares } & \$ 90,000 & \$ 80,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 50,000 \
\hline \text { Total Liabilities and Equity } & \$ 540,000 & \$ 200,000 \
\hline
\end{array}\) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, what would be the amount of goodwill appearing on the Consolidated Balance Sheet on the date of acquisition if the identifiable net assets (INA) method were used?
A) $72,000
B) $88,000
C) $70,400
D) Nil

Accepted Answer

Goodwill is calculated as the excess of the purchase consideration over the fair value of the identifiable net assets (INA) acquired. The fair value of Sub Inc's net assets is calculated by adding the fair values of its assets and subtracting its liabilities. The fair values of Sub Inc's assets are: Cash $36,000, Accounts Receivable $40,000, Inventory $27,000, Plant and Equipment $93,000, and Trademark $15,000, totaling $211,000. The liabilities are Current Liabilities $50,000 and Bonds Payable $24,000, totaling $74,000. Thus, the fair value of INA is $211,000 - $74,000 = $137,000. Parent Inc acquires 80% of Sub Inc, so the fair value of the acquired INA is 80% of $137,000 = $109,600. The purchase consideration is $180,000. Therefore, goodwill is $180,000 - $109,600 = $70,400.

Question 7

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: \(\begin{array}{|l|r|r|r|}
\hline & \text { Parent Inc } & \text { Sub Inc } & \text { Sub Inc } \
\hline & \text { (caryying value) } & \begin{array}{r}
\text { (carrying } \
\text { value) }
\end{array} & \text { (fair value) } \\hline \text { Cash } & \$ 180,000 & \$ 36,000 & \$ 36,000 \
\hline \text { Accounts Receivable } & \$ 100,000 & \$ 40,000 & \$ 40,000 \
\hline \text { Inventory } & \$ 60,000 & \$ 24,000 & \$ 27,000 \\hline \text { Plant and Equipment (net) } & \$ 200,000 & \$ 80,000 & \$ 93,000 \
\hline \text { Goodwill } & \$- & \$ 8,000 & \
\hline \text { Trademark } & \$- & \$ 12,000 & \$ 15,000 \\hline \text { Total Assets } & \$ \mathbf{5 4 0 , 0 0 0} & \$ 200,000 & \
\hline \text { Current Liabilities } & \$ 80,000 & \$ 50,000 & \$ 50,000 \
\hline \text { Bonds Payable } & \$ 320,000 & \$ 20,000 & \$ 24,000 \\hline \text { Common Shares } & \$ 90,000 & \$ 80,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 50,000 \
\hline \text { Total Liabilities and Equity } & \$ 540,000 & \$ 200,000 \
\hline
\end{array}\) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, the Shareholders' Equity section of Parent's consolidated balance sheet on the date of acquisition would total to what amount under the fair value enterprise method?
A) $140,000
B) $185,000
C) $244,000
D) $270,000

Accepted Answer

The answer of Parent Inc. and Sub Inc. had the...

Question 8

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: \(\begin{array}{|l|r|r|r|}
\hline & \text { Parent Inc } & \text { Sub Inc } & \text { Sub Inc } \
\hline & \text { (caryying value) } & \begin{array}{r}
\text { (carrying } \
\text { value) }
\end{array} & \text { (fair value) } \\hline \text { Cash } & \$ 180,000 & \$ 36,000 & \$ 36,000 \
\hline \text { Accounts Receivable } & \$ 100,000 & \$ 40,000 & \$ 40,000 \
\hline \text { Inventory } & \$ 60,000 & \$ 24,000 & \$ 27,000 \\hline \text { Plant and Equipment (net) } & \$ 200,000 & \$ 80,000 & \$ 93,000 \
\hline \text { Goodwill } & \$- & \$ 8,000 & \
\hline \text { Trademark } & \$- & \$ 12,000 & \$ 15,000 \\hline \text { Total Assets } & \$ \mathbf{5 4 0 , 0 0 0} & \$ 200,000 & \
\hline \text { Current Liabilities } & \$ 80,000 & \$ 50,000 & \$ 50,000 \
\hline \text { Bonds Payable } & \$ 320,000 & \$ 20,000 & \$ 24,000 \\hline \text { Common Shares } & \$ 90,000 & \$ 80,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 50,000 \
\hline \text { Total Liabilities and Equity } & \$ 540,000 & \$ 200,000 \
\hline
\end{array}\) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, the liabilities section of Parent's consolidated balance sheet on the date of acquisition (August 1, 2019) would total to what amount under the fair value enterprise method?
A) $470,000
B) $474,000
C) $500,000
D) $519,000

Accepted Answer

The answer of Parent Inc. and Sub Inc. had the...

Question 9

Any goodwill on the subsidiary company's books on the date of acquisition:
A) must be revalued.
B) must be eliminated in preparing consolidated financial statements.
C) must be recorded as a loss on acquisition.
D) must be subject to an impairment test.

Accepted Answer

Any goodwill on the subsidiary company's books on the date of acquisition must be eliminated in preparing consolidated financial statements as it represents the excess of the cost of acquisition over the subsidiary's net assets. This is because the consolidated financial statements must present the financial position and performance of the group as a whole, and therefore any intercompany transactions and balances must be removed. The elimination of goodwill is necessary to avoid double counting of the subsidiary's value.

Question 10

Which statement about the differences between consolidation methods permitted under ASPE and IFRS is true?
A) IFRS and ASPE both require the use of the fair value enterprise method or the identifiable net assets method.
B) IFRS and ASPE both require the use of the identifiable net assets method.
C) IFRS permits either the fair value enterprise method or identifiable net assets method; ASPE requires the fair value enterprise method.
D) IFRS permits either the fair value enterprise method or the identifiable net assets method; ASPE requires the identifiable net assets method.

Accepted Answer

The answer of Which statement about the differences between consolidation...

Question 11

When a contingent consideration arising from a business combination is classified as equity, how is any change in its fair value accounted for if the difference arises due to a change in circumstances?
A) As an adjustment to the consideration paid for the subsidiary.
B) As an adjustment to an estimate included in the determination of net income.
C) As a memorandum entry indicating that additional shares had been issued.
D) As an adjustment to consolidated contributed surplus.

Accepted Answer

When a contingent consideration is classified as equity, any change in its fair value due to a change in circumstances is not recognized in profit or loss or other comprehensive income. Instead, it is treated as if additional shares were issued or equity instruments granted, hence the correct treatment is akin to a memorandum entry indicating that additional shares had been issued. This approach reflects the equity nature of the consideration, where fluctuations in value do not impact the financial statements in the same way as asset or liability adjustments would.

Question 12

Which accounts differ on the consolidated balance sheet when using the fair value enterprise method compared to the identifiable net assets method?
A) The investment in subsidiary balance and the consolidated retained earnings balance.
B) The goodwill balance and the consolidated retained earnings balance.
C) The goodwill balance and the non-controlling interest balance.
D) The investment in subsidiary balance and the non-controlling interest balance.

Accepted Answer

The fair value enterprise method and the identifiable net assets method differ in how they treat goodwill and non-controlling interest. The fair value method may result in a different valuation of goodwill due to the consideration of the entire fair value of the subsidiary, including synergies, and it also affects the measurement of non-controlling interest, as it is based on the fair value of the subsidiary's net assets.

Question 13

Non-controlling interest (NCI) is presented under the liabilities section of the consolidated balance sheet under the:
A) the fair value enterprise method.
B) the proportionate consolidation method.
C) the parent company method.
D) both the parent company method and the proportionate consolidation method.

Accepted Answer

Non-controlling interest (NCI) is presented in the equity section of the consolidated balance sheet, not under liabilities. It is recognized under the parent company method, where the financial statements of the parent and its subsidiaries are combined line by line, and the NCI is shown as a separate component of equity, reflecting the portion of equity not attributable to the parent company shareholders.

Question 14

IFRS permits several methods to be used to determine the fair value of the non-controlling interest in a subsidiary at the acquisition date. Which of the following is NOT an appropriate method to determine the fair value of the non-controlling interest (NCI)?
A) The NCI may be valued at the market value of the subsidiary's shares.
B) The NCI may be valued by determining the fair value of the business by means of an independent business valuation and then deducting the fair value of the controlling interest.
C) The NCI may be valued proportionately to the price paid by the parent for its controlling interest.
D) The NCI can't be valued objectively, so a nominal value of one dollar is assigned to the NCI.

Accepted Answer

Assigning a nominal value of one dollar to the NCI is not an appropriate method to determine the fair value of the NCI. The other choices are all appropriate methods that may be used to determine the fair value of the NCI.

Question 15

The focus of the consolidated financial statements on the shareholders of the parent company is characteristic of:
A) the fair value enterprise method.
B) The proportionate consolidation method.
C) the parent company method.
D) both the parent Company method and the proportionate consolidation method.

Accepted Answer

The answer of The focus of the consolidated financial statements...

Question 16

When a contingent consideration arising from a business combination is classified as a liability, how is any change in its fair value as a result of new information about the facts and circumstances that existed at the acquisition date accounted for if identified and measured within one year subsequent to the acquisition date?
A) As an adjustment to the consideration paid for the subsidiary.
B) As an adjustment to an estimate included in the determination of net income.
C) As a direct adjustment to consolidated retained earnings.
D) As an adjustment to consolidated contributed surplus.

Accepted Answer

Changes in the fair value of a contingent consideration classified as a liability, due to new information about facts and circumstances that existed at the acquisition date and identified within one year of the acquisition, are accounted for as an adjustment to the consideration paid for the subsidiary. This reflects the adjustment of the acquisition cost rather than affecting the income statement or equity items directly.

Question 17

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: \(\begin{array}{|l|r|r|r|}
\hline & \text { Parent Inc } & \text { Sub Inc } & \text { Sub Inc } \
\hline & \text { (caryying value) } & \begin{array}{r}
\text { (carrying } \
\text { value) }
\end{array} & \text { (fair value) } \\hline \text { Cash } & \$ 180,000 & \$ 36,000 & \$ 36,000 \
\hline \text { Accounts Receivable } & \$ 100,000 & \$ 40,000 & \$ 40,000 \
\hline \text { Inventory } & \$ 60,000 & \$ 24,000 & \$ 27,000 \\hline \text { Plant and Equipment (net) } & \$ 200,000 & \$ 80,000 & \$ 93,000 \
\hline \text { Goodwill } & \$- & \$ 8,000 & \
\hline \text { Trademark } & \$- & \$ 12,000 & \$ 15,000 \\hline \text { Total Assets } & \$ \mathbf{5 4 0 , 0 0 0} & \$ 200,000 & \
\hline \text { Current Liabilities } & \$ 80,000 & \$ 50,000 & \$ 50,000 \
\hline \text { Bonds Payable } & \$ 320,000 & \$ 20,000 & \$ 24,000 \\hline \text { Common Shares } & \$ 90,000 & \$ 80,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 50,000 \
\hline \text { Total Liabilities and Equity } & \$ 540,000 & \$ 200,000 \
\hline
\end{array}\) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, what would be the amount of goodwill appearing on the Consolidated Balance Sheet on the date of acquisition if the fair value enterprise (FVE) method were used?
A) $72,000
B) $88,000
C) $70,400
D) Nil

Accepted Answer

The answer of Parent Inc. and Sub Inc. had the...

Question 18

Which method presents the non-controlling interest (NCI) in in the Shareholders' Equity section of the balance sheet?
A) The fair value enterprise method.
B) The proportionate consolidation.
C) The parent company method.
D) The acquisition method.

Accepted Answer

The answer of Which method presents the non-controlling interest (NCI)...

Question 19

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: \(\begin{array}{|l|r|r|r|}
\hline & \text { Parent Inc } & \text { Sub Inc } & \text { Sub Inc } \
\hline & \text { (caryying value) } & \begin{array}{r}
\text { (carrying } \
\text { value) }
\end{array} & \text { (fair value) } \\hline \text { Cash } & \$ 180,000 & \$ 36,000 & \$ 36,000 \
\hline \text { Accounts Receivable } & \$ 100,000 & \$ 40,000 & \$ 40,000 \
\hline \text { Inventory } & \$ 60,000 & \$ 24,000 & \$ 27,000 \\hline \text { Plant and Equipment (net) } & \$ 200,000 & \$ 80,000 & \$ 93,000 \
\hline \text { Goodwill } & \$- & \$ 8,000 & \
\hline \text { Trademark } & \$- & \$ 12,000 & \$ 15,000 \\hline \text { Total Assets } & \$ \mathbf{5 4 0 , 0 0 0} & \$ 200,000 & \
\hline \text { Current Liabilities } & \$ 80,000 & \$ 50,000 & \$ 50,000 \
\hline \text { Bonds Payable } & \$ 320,000 & \$ 20,000 & \$ 24,000 \\hline \text { Common Shares } & \$ 90,000 & \$ 80,000 \
\hline \text { Retained Earnings } & \$ 50,000 & \$ 50,000 \
\hline \text { Total Liabilities and Equity } & \$ 540,000 & \$ 200,000 \
\hline
\end{array}\) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, the Shareholders' Equity section of Parent's consolidated balance sheet on the date of acquisition would total to what amount if the identifiable net assets (INA) method were used?
A) $140,000
B) $185,000
C) $270,000
D) $167,400

Accepted Answer

The Shareholders' Equity section of Parent's consolidated balance sheet using the identifiable net assets (INA) method would total $167,400. This is calculated by adding Parent Inc's equity ($90,000 in Common Shares + $50,000 in Retained Earnings = $140,000) to 80% of the difference between Sub Inc's fair value of net assets and its book value of net assets. The fair value of Sub Inc's net assets is calculated as the sum of its fair value assets ($36,000 Cash + $40,000 Accounts Receivable + $27,000 Inventory + $93,000 Plant and Equipment + $15,000 Trademark = $211,000) minus its liabilities ($50,000 Current Liabilities + $24,000 Bonds Payable = $74,000), resulting in $137,000. The book value of Sub Inc's net assets is its total equity ($80,000 Common Shares + $50,000 Retained Earnings = $130,000). The difference between the fair value and book value of Sub Inc's net assets is $7,000 ($137,000 - $130,000). Therefore, 80% of this difference is $5,600 ($7,000 * 80%). Adding this to Parent Inc's equity gives $145,600 ($140,000 + $5,600). However, the goodwill recognized in the acquisition must also be considered. Goodwill is calculated as the purchase price minus the fair value of the net assets acquired (80% of $137,000 = $109,600). The purchase price is $180,000, so goodwill is $70,400 ($180,000 - $109,600). Adding this goodwill to the previously calculated equity total gives $167,400 ($145,600 + $70,400).

Question 20

When the non-controlling interest's share of the subsidiary's goodwill cannot be reliably determined, the method used to prepare consolidated financial statements is:
A) the fair value enterprise method.
B) The proportionate consolidation method.
C) the parent company method.
D) the identifiable net assets method.

Accepted Answer

The identifiable net assets method is used when the non-controlling interest's share of the subsidiary's goodwill cannot be reliably determined. This method involves calculating the subsidiary's net assets (assets minus liabilities) and subtracting any non-controlling interest in those net assets. The remaining amount is recorded as goodwill on the parent company's consolidated balance sheet.

Quiz 4: Consolidation of Non-Wholly Owned Subsidiaries

In the event of a negative acquisition differential, under what circumstances is it still possible to have positive goodwill?

If the non-controlling interest at acquisition is based on the fair value of the subsidiary's identifiable net assets, which consolidation method is being applied?

When a contingent consideration arising from a business combination is classified as a liability, how is any difference between the original estimate of the amount to be paid and the actual amount paid accounted for if the difference arises due to a change in circumstances?

Any goodwill on the subsidiary company's books on the date of acquisition:

Which statement about the differences between consolidation methods permitted under ASPE and IFRS is true?

When a contingent consideration arising from a business combination is classified as equity, how is any change in its fair value accounted for if the difference arises due to a change in circumstances?

Which accounts differ on the consolidated balance sheet when using the fair value enterprise method compared to the identifiable net assets method?

Non-controlling interest (NCI) is presented under the liabilities section of the consolidated balance sheet under the:

IFRS permits several methods to be used to determine the fair value of the non-controlling interest in a subsidiary at the acquisition date. Which of the following is NOT an appropriate method to determine the fair value of the non-controlling interest (NCI) ?

The focus of the consolidated financial statements on the shareholders of the parent company is characteristic of:

Which method presents the non-controlling interest (NCI) in in the Shareholders' Equity section of the balance sheet?

When the non-controlling interest's share of the subsidiary's goodwill cannot be reliably determined, the method used to prepare consolidated financial statements is: