Question 1

If a parent entity is a reporting entity the group must also be a reporting entity.

Accepted Answer

False

Question 2

If a company has control over the financial policies of another entity it is deemed to have control over the operating policies.

Accepted Answer

Having control over the financial policies of another entity does not necessarily mean a company has control over the operating policies. Control over financial policies might relate to financial decisions, investments, and funding, while control over operating policies involves decisions on the entity's day-to-day operations, strategies, and management practices. These are distinct areas of governance.

Question 3

Investments in associates(other than those classified as held for sale)will be measured at cost in the consolidated financial statements.

Accepted Answer

Associates (other than those classified as held for sale) can be measured using the equity method or the fair value method, but not at cost.

Question 4

Assume that Scipio Ltd has a controlling interest in Africanus Ltd.As a result of this relationship:
A) The directors of Africanus Ltd have a fiduciary duty to act in the best interests of Scipio Ltd.
B) Because of its controlling interest in Africanus Ltd, Scipio Ltd will take over the management of Africanus Ltd from the Board of that company.
C) The Board of Africanus Ltd will be dissolved as they no longer have any real power in Africanus Ltd.
D) None of the above.

Accepted Answer

None of the statements are correct. Having a controlling interest in a company does not necessarily mean that the controlling company takes over the management of the other company or that the board of the company being controlled is dissolved. The directors of Africanus Ltd still have a fiduciary duty to act in the best interests of Africanus Ltd and its shareholders.

Question 5

A subsidiary may be:
A) a company
B) a partnership
C) an individual
D) all of the above

Accepted Answer

A subsidiary can be any form of business entity, including a company, partnership, or even an individual, as long as it is controlled by another entity (the parent company).

Question 6

A Ltd controls B Ltd who in turn controls C Ltd.B Ltd and the B Ltd group are not reporting entities.A Ltd is a reporting entity.Consolidated financial statements will be required to be prepared for:
A) The A group
B) The B group
C) Both the A Group and the B Group
D) Not required

Accepted Answer

As A Ltd is a reporting entity, consolidated financial statements will be required to be prepared for the A group. B Ltd and its group are not reporting entities and therefore do not require consolidated financial statements. C Ltd is controlled by B Ltd and should be consolidated in B Ltd's financial statements, but as B Ltd is not a reporting entity, there is no requirement for consolidated financial statements for the B Group.

Question 7

Accounting Standard AASB127 applies only to the consolidated financial statements of a group.

Accepted Answer

AASB 127 applies to both the consolidated financial statements of a group and to separate financial statements of a parent, investor, or venturer within the scope of AASB 10 or AASB 128.

Question 8

A reporting entity is a single entity which meets certain criteria.

Accepted Answer

A reporting entity can be a single entity or a group of entities that meet certain criteria for financial reporting purposes.

Question 9

In the separate financial statements of a parent entity investments not classified as held for sale are accounted for:
A) at cost
B) at fair value
C) at either cost or fair value
D) not recorded

Accepted Answer

In the separate financial statements, investments not classified as held for sale can be accounted for either at cost or at fair value, depending on the accounting policy of the parent entity. Therefore, both options are acceptable.

Question 10

In substance,investments in equity securities may be classified as:
A) Trading investments at fair value, where increments and decrements in the fair value of the investments are recognised in the income statement.
B) Available for sale investments.
C) Equity investments in subsidiaries, associates and joint venture entities.
D) All of the above.

Accepted Answer

All the options given (A, B, and C) are different classifications of equity securities that a company can make investments in. Therefore, the correct answer is D, which includes all of the above options.

Question 11

On July 1 20X5,Helios Ltd acquired 100,000 shares in Havers Ltd for $10 per share.The shares were acquired for trading purposes.During the year ended June 30 20X6,Helios Ltd received a fully franked dividend from Havers Ltd amounting to $60,000.The income tax rate was 30%.At June 30 20X6,the shares were quoted in the market at $9 per share,although the fall in the market price was considered to be only temporary.As a result of this investment,Helios Ltd would:
A) Report a profit before tax from the investment of $60,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $900,000.
B) Report a loss before tax from the investment of $40,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $900,000.
C) Report a profit before tax from the investment of $60,000 and report the investment in its balance sheet at June 30 20X6 at an amount of $1,000,000.
D) None of the above.

Accepted Answer

Since Helios Ltd acquired the shares for trading purposes, they would be classified as financial assets at fair value through profit or loss. Therefore, the investment would be reported at the market value of $900,000 at June 30 20X6. The fully franked dividend income of $60,000 would be added to the profit before tax from the investment. As the shares were quoted at $9 per share at June 30 20X6, the market value of the investment had decreased to $900,000, resulting in a loss before tax of $40,000. Option A and C are incorrect as they do not accurately reflect the accounting treatment for trading investments at fair value through profit or loss. Option D is incorrect as there is a clear accounting treatment for trading investments under International Financial Reporting Standards.

Question 12

All companies must prepare 'separate financial statements'.

Accepted Answer

Not all companies must prepare separate financial statements. Some companies, such as small businesses or single owner-operated entities, may be exempted from this requirement.

Question 13

A trust cannot be a subsidiary.

Accepted Answer

The answer of A trust cannot be a subsidiary....

Question 14

For a company to be required to present consolidated financial statements it must be:
A) a parent entity
B) a reporting entity
C) part of a group that is a reporting entity
D) Any of the above

Accepted Answer

The answer of For a company to be required to...

Question 15

Equity investments falling within the scope of AASB 139 Financial Instruments can be measured at fair value.

Accepted Answer

According to AASB 139 Financial Instruments, equity investments can be measured at fair value.

Question 16

Joint control can exist where share ownership by investing companies is not equal.

Accepted Answer

Joint control refers to the situation where two or more companies have the ability to share control over another entity. This can exist even if the share ownership is not equal. The key factor is that significant influence over the entity is shared among the investing companies.

Question 17

Cassius Ltd and Brutus Ltd agreed to merge by forming another company,Casca Ltd,which acquired all of the share capital of the two companies in a share exchange.Cassius Ltd was a much larger company than Brutus Ltd with several large equity stakeholders so that the Board of Cassius Ltd emerged from the business combination with the power to dominate the operating and financial policies of the merged entity.Based on these facts:
A) Casca Ltd must be the acquiring entity since it acquired the share capital of Cassius Ltd and Brutus Ltd.
B) Cassius Ltd is the acquiring entity since its management emerges as the dominant power in the merged entity.
C) Neither Cassius Ltd nor Brutus Ltd can be the acquiring entity since their equity securities have been acquired by Casca Ltd.
D) None of the above.

Accepted Answer

Cassius Ltd is the acquiring entity because its management emerged as the dominant power in the merged entity, despite the fact that the share capital was acquired by Casca Ltd. The size and power of Cassius Ltd's equity stakeholders gave it this dominance.

Question 18

An 'extended group' includes:
A) controlled entities
B) associates
C) joint ventures
D) all the above

Accepted Answer

The answer of An 'extended group' includes:
A) controlled entities
B) associates
C)...

Question 19

In AASB 3,the indicia of an acquiring entity's power to control the other combining entities in a business combination do not include the power to:
A) Exercise more than one-half of the voting rights in another entity through the sie of the voting power or by virtue of an agreement with other investors.
B) Appoint or remove a majority of the members of the governing body of the acquired entities.
C) Cast the majority of votes at meetings of the governing body.
D) None of the above.

Accepted Answer

All the options A, B, and C are indicia of an acquiring entity's power to control the other combining entities in a business combination according to AASB 3.

Question 20

Ownership of more than 50% of the voting power will always represent control.

Accepted Answer

Control can be achieved through arrangements that do not involve owning more than 50% of the voting power, such as through contractual agreements, the ability to appoint key management personnel, or other means that ensure the ability to direct the relevant activities of an entity.

Quiz 1: Text Objectives and Introduction to Consolidation

If a parent entity is a reporting entity the group must also be a reporting entity.

If a company has control over the financial policies of another entity it is deemed to have control over the operating policies.

Investments in associates(other than those classified as held for sale)will be measured at cost in the consolidated financial statements.

Assume that Scipio Ltd has a controlling interest in Africanus Ltd.As a result of this relationship:

A subsidiary may be:

A Ltd controls B Ltd who in turn controls C Ltd.B Ltd and the B Ltd group are not reporting entities.A Ltd is a reporting entity.Consolidated financial statements will be required to be prepared for:

Accounting Standard AASB127 applies only to the consolidated financial statements of a group.

A reporting entity is a single entity which meets certain criteria.

In the separate financial statements of a parent entity investments not classified as held for sale are accounted for:

In substance,investments in equity securities may be classified as:

All companies must prepare 'separate financial statements'.

A trust cannot be a subsidiary.

For a company to be required to present consolidated financial statements it must be:

Equity investments falling within the scope of AASB 139 Financial Instruments can be measured at fair value.

Joint control can exist where share ownership by investing companies is not equal.

An 'extended group' includes:

In AASB 3,the indicia of an acquiring entity's power to control the other combining entities in a business combination do not include the power to:

Ownership of more than 50% of the voting power will always represent control.