Question 1

In a consolidation,it would be double counting to record the net assets of a subsidiary and the parent company's investment in subsidiary asset.

Accepted Answer

This is because the net assets of the subsidiary already include the parent company's investment in the subsidiary, so counting it again would result in a duplication or double counting. Consolidation aims to present a unified financial statement of the parent and its subsidiaries as if they are a single entity. Thus, double counting should be avoided to ensure the accuracy and reliability of the consolidated financial statements.

Question 2

The investment date and the acquisition date of a subsidiary will always be the same.

Accepted Answer

The investment date and acquisition date of a subsidiary can be different. The investment date refers to the date when the investor purchases the shares or makes a capital contribution to acquire a controlling interest in the subsidiary. The acquisition date, on the other hand, is the date when the investor gains control over the subsidiary, which may occur sometime after the investment date. Control is determined by the ability to direct the subsidiary's operations and financial policies to generate benefits for the investor.

Question 3

The declaration date of a dividend determines whether it will be recorded as a liability in the financial statements.

Accepted Answer

The declaration date of a dividend is when the company's board of directors announces an upcoming dividend to be paid to shareholders. At this point, the dividend is considered a liability and must be recorded in the financial statements. Therefore, the statement is true.

Question 4

Goodwill is not an identifiable intangible asset because it is not separable.

Accepted Answer

Goodwill is not separately identifiable from other assets and liabilities of a business. Therefore, it cannot be recognized as an intangible asset on a company's balance sheet.

Question 5

Post-acquisition changes in the composition of pre-acquisition equity can be ignored for the purposes of consolidation adjustments.

Accepted Answer

Post-acquisition changes in the composition of pre-acquisition equity cannot be ignored as they may result in changes to the amount of goodwill recognized and the equity attributable to non-controlling interests. Therefore, these changes need to be taken into account for consolidation adjustments.

Question 6

The purpose of consolidated financial statements is to provide information to shareholders of the parent company.

Accepted Answer

Consolidated financial statements provide information to the shareholders of the group as a whole, not just the shareholders of the parent company.

Question 7

Where a subsidiary's financial reporting period ends on a different date to that of the parent company,the subsidiary must prepare additional financial statements

Accepted Answer

When a subsidiary's financial reporting period ends on a different date than that of the parent company, the subsidiary must prepare additional financial statements to align with the parent company's reporting period. This is necessary for consolidation purposes and to ensure accurate financial reporting at the parent company level.

Question 8

The general purpose financial statements (GPFS)of a parent entity are prepared from the viewpoint of the:

Accepted Answer

The general purpose financial statements of a parent entity are prepared from the viewpoint of the group, as they consolidate the financial information of the parent and its subsidiaries to present a comprehensive view of the entire economic entity.

Question 9

Discuss the changes in the accounting rules for recognition of liabilities for dividends payable after 1 January 2005.

Accepted Answer

The answer of Discuss the changes in the accounting rules...

Question 10

A parent and its subsidiary adopt different bases for measuring property plant and equipment assets.Upon consolidation,the financial statements must reflect:

Accepted Answer

When a parent and subsidiary have different accounting policies for measuring property, plant, and equipment, the financial statements of the group must reflect the accounting policy of the group, not that of the parent or the subsidiary. This is because consolidation requires the financial statements to show the true and fair view of the group's financial position, and consistency in accounting policies is essential for achieving this objective. Therefore, choice A, the accounting policy of the group, is the correct answer.

Question 11

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:

Accepted Answer

The answer of Where a subsidiary has declared but not...

Question 12

A company with a constitution that provides for the declaration of dividends will recognise a liability for dividends payable if:

Accepted Answer

A liability for dividends payable is recognised when the dividend is declared before the balance date. This is because the company is obligated to pay the dividend to its shareholders. If the dividend is recommended before the balance date but not declared, there is no obligation to pay the dividend yet. If the dividend is recommended and declared after the balance date, it belongs to the next financial period. None of the above options cover the circumstance.

Question 13

Goodwill on acquisition is recorded when:

Accepted Answer

Goodwill on acquisition is recorded when the cost of the acquisition is more than the fair value of the subsidiary's equity. Goodwill represents the premium paid by the acquirer over the value of the net assets acquired.

Question 14

All consolidation adjusting entries must be repeated in subsequent accounting periods.

Accepted Answer

Consolidation adjusting entries are specific to the period in which they are made and are not automatically repeated in subsequent periods. Each period may require different adjustments based on the intercompany transactions and changes in the financial relationships between the parent and subsidiary.

Question 15

Consolidation worksheet adjusting entries are recorded:

Accepted Answer

Consolidation worksheet adjusting entries are recorded in the consolidation working papers to adjust the financial statements of both the parent and subsidiary entities to reflect the consolidated financial position and results. These adjustments are made to eliminate any intercompany transactions and to ensure that the financial statements are prepared using the same accounting principles and methods. Therefore, option C is the correct answer.

Question 16

A company adopting the replaceable rules included in the Corporations Act announces a dividend to be paid after the balance date.The company:

Accepted Answer

According to the replaceable rules of the Corporations Act, a company is not required to recognise a liability for a proposed dividend until it is declared by the board of directors. Therefore, the company must not recognise a liability in its financial statements until the dividend has been formally declared.

Question 17

It is important to distinguish between pre-acquisition and post-acquisition equity of a subsidiary to allow:

Accepted Answer

Distinguishing between pre-acquisition and post-acquisition equity helps in avoiding double counting of pre-acquisition equity. This is because pre-acquisition equity is already reflected in the value of the investment made in the subsidiary. By distinguishing between the two, the parent can ensure that pre-acquisition equity is not counted twice – once in the investment and again in the subsidiary’s equity after acquisition.

Question 18

Explain the consequences of distinguishing between pre-acquisition and post-acquisition equity of a subsidiary in the consolidation process.

Accepted Answer

The answer of Explain the consequences of distinguishing between pre-acquisition...

Question 19

Totals and subtotals in a consolidation worksheet are derived by adding/subtracting down the group column.

Accepted Answer

Totals and subtotals in a consolidation worksheet are derived by adding or subtracting down the group column, so all the amounts in that particular column are aggregated to arrive at the total or subtotal.

Question 20

Dividends payable by a subsidiary on an ex-dividend basis will be ignored for the purposes of consolidation.

Accepted Answer

This is true because dividends paid on an ex-dividend basis means that the buyer of the stock will not receive the dividend payment. Therefore, including it in the consolidation would not accurately reflect the total dividends paid by the subsidiary.

Quiz 2: Principles of Consolidation