1. Petros Limited is a subsidiary of Butros Limited.

When Butros acquired its 60% interest the

retained earnings of Petros Limited were $20 000. At the beginning of the current period Petros
Limiteds retained earnings had increased to $50 000. Petros earned profit of $10 000 during
the current period. The share of the non-controlling interest in the equity of Petros Limited at
reporting date is:
Answer
$24 000
$32 000
$36 000
$48 000.

2. Dragon Limited is an entity listed in Hong Kong. Dragon Limited holds a 100% investment
in Aussie Pty Ltd, an Australian based company, who in turn holds a 90% interest in Bondi Pty
Ltd. Aussie Pty Ltd and the Aussie group (comprising Aussie and Bondi) are both non-
reporting entities. Which of the following statements is correct?
Answer
Aussie Pty Ltd will be required to prepare consolidated financial statements as the
ultimate Australian parent.
Aussie Pty Ltd will not be required to prepare consolidated financial statements as they
are a non-reporting entity.
Aussie Pty Ltd will be required to prepare consolidated financial statements only if
directed to do so by ASIC.
Aussie Pty Ltd will not be required to prepare consolidated financial statements as
Dragon is a listed foreign entity.

3. A Ltd sold an item of plant to B Ltd on 1 January 20X7 for $25 000. The asset had cost A
Ltd $30 000 when acquired on 1 January 20X5. At that time the useful life of the plant was
assessed at 6 years. The adjustment necessary on consolidation to reflect the tax effect of the
depreciation adjustment for the year ended 30 June 20X7 will result in an increase in:
Answer
deferred tax assets
deferred tax liabilities
income tax expense
current tax liability.

4. A parent entity group sold a depreciable non-current asset to a subsidiary entity for $2800.
The asset originally cost $3000 and at the date of sale accumulated depreciation was $500. The
amount of the unrealised gain on sale to be eliminated is:
Answer
$2800
$500
$300
$200
5. A non-controlling interest is entitled to a share of which of the following items?
I Equity of the group entity at acquisition date
II Current period profit or loss of the subsidiary entity
III Changes in equity of the subsidiary since acquisition date and the beginning of the financial
period
IV Equity of the subsidiary at acquisition date
Answer
I, II and III
I and II only
II, III and IV only
III only.

6. Jiminez Limited acquired 80% of the share capital and reserves of Mustang Limited for
$180 000. Share capital was $100 000 and reserves amounted to $50 000. All assets and
liabilities were recorded at fair value except buildings which was recorded at $10 000 below
fair value. The fair value of the NCI at the date of Jiminezs acquisition was $35 000 and the
full goodwill method is adopted by the group. If the company tax rate was 30%, the goodwill
recorded in relation to this business combination amounts to:
Answer
$3 600
$23 000
$54 400
$58 000.

7. A Ltd holds a 60% interest in B Ltd. B Ltd sells inventory to A Ltd during the year for
$10 000. The inventory originally cost $7 000. At the end of the year 50% of the inventory is
still on hand. The tax rate is 30%. The NCI adjustment required in relation to this transaction is
a debit of:
Answer
NIL
$420
$630
$1 050.

8. In May 20X7, a parent entity sold inventory to a subsidiary entity for $30 000. The inventory
had previously cost the parent entity $24 000. The entire inventory is still held by the subsidiary
at reporting date, 30 June 20X7. Ignoring tax effects, the adjustment entry in the consolidation
worksheet at reporting date is:
Answer
Cash Dr 24,000
Sales revenue Cr 24,000
Cost of Sales Dr 24,000
Inventory Cr 24,000
Sales revenue Dr 24,000
Cash Cr 24,000
Inventory Dr 24,000
Cost of Sales Cr 24,000
 Sales revenue Dr 30,000
Cost of Sales Cr 6,000
Inventory Cr 24,000
Sales revenue Dr 30,000
Cost of Sales Cr 24,000
Inventory Cr 6,000

9. According to AASB 10 Consolidated Financial Statements, the following factors indicate the
existence of control:
I. Possessing existing rights that give the current ability to direct the relevant activities
II. Shared power in the governance of financial and operating policies of another entity so as
to obtain benefits.
III. The power to govern the operating policies of an entity so as to obtain benefits.
IV. Ownership of more than 50% of the voting power in the subsidiary.
Answer
I, II and III only
I and IV only
II and IV only
IV only.

10. On 1 July 20X6, P Limited acquired all the issued shares of S Limited for $50 000 when the
equity of S Limited consisted of: Share Capital $35 000, Retained Earnings $15 000. The pre-
acquisition entry at 1 July 20X6 is:
Answer
Shares in S Limited Dr 50,000
Opening Retained earnings Cr 15,000
Share capital Cr 35,000
Opening Retained earnings Dr 15,000
Share capital Dr 35,000
Shares in S Limited Cr 50,000
Opening Retained earnings Dr 35,000
Share capital Dr 15,000
Shares in S Limited Cr 50,000
Goodwill Dr 15,000
Share capital Dr 35,000
Shares in S Limited Cr 50,000

11. A Ltd holds a 60% interest in B Ltd. On 1 July 20X8 B Ltd transferred a depreciable non-
current asset to A Ltd at a profit of $5 000. The remaining useful life of the asset at the date of
transfer was 4 years and the tax rate is 30%. The impact of the above on the NCI share of profit
for the year ended 30 June 20X9 is:
Answer
an increase of $2 625
a decrease of $2 625
an increase of $1 050
a decrease of $1 050.

12. Lu Nan Limited acquired 80% of the share capital and reserves of Hui Limited for $20 000.
Share capital was $10 000 and reserves amounted to $6 000. All assets and liabilities were
recorded at fair value except plant which was recorded at $1 000 below fair value. The
company tax rate was 30%. The partial goodwill method is adopted by the group. The amount
of goodwill acquired by Lu Nan Limited in this business combination was:
Answer
$4 000
$6 640
$7 200
$13 360.

13. The process of aggregating individual sets of financial statements to produce consolidated
financial statements requires:
Answer
that no adjustments be entered into the individual ledger accounts of entities in the group
balance sheet date adjusting journal entries to be recorded in the ledger accounts of the
subsidiaries
accruals of expenses and revenue, directly into the retained earnings ledger account of
the parent entity
balance sheet date adjusting entries directly into the ledger accounts of the parent entity
only

14. During the year ended 30 June 20X7, a parent entity rents a warehouse from a subsidiary
entity for $100 000. The company tax rate is 30%. The consolidation adjustment entry needed
at reporting date is:
Answer
Rent revenue Dr 100,000

Rent expense Cr 100,000

Rent revenue Dr 100,000

Rent expense Cr 100,000

Income tax expense Dr 30,000

Deferred tax liability Cr 30,000

Rent revenue Dr 100,000

Rent expense Cr 100,000

Deferred tax asset Dr 30,000

Income tax expense Cr 30,000

Rent expense Dr 100,000

Rent revenue Cr 100,000

15. All parent entities are required to present consolidated statements unless the following
conditions apply to them:
I The parent is a wholly owned subsidiary.
II The parent is a partly owned subsidiary and its owners do not object to the non-
presentation of consolidated financial statements.
III The parents 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.
Answer
I and II only
I, II and III only
I, II and IV only
I, II, III and IV.

16. When preparing consolidated financial statements, adjustments for pre-acquisition equity
and inter-entity transactions are recorded:
Answer
in the accounting records of the parent entity
in the accounting records of the subsidiary
on a consolidation worksheet
in the accounting records of the reporting entity.

17. Which of the following statements is correct?

Answer
The legal acquirer under AASB 3 and the accounting acquirer under AASB 10 do not
have to be the same entity.
The entity identified under AASB 10 as the parent will be the acquirer under AASB 3.
The legal acquirer is determined under AASB 3 as the entity that issues the equity
instruments.
The accounting acquirer is the entity that becomes the controlling entity.

18. On 1 July 20X6 Possum acquired a 100% interest in Echidna. At that time Echidna had
goodwill of $5 000 recorded in its statement of financial position as a result of a previous
business combination. The total goodwill arising on Possums acquisition of Echidna was
$12,000. The goodwill recognised on consolidation as a result of Possums acquisition of
Echidna is:
Answer
nil
$5 000
$7 000
$12 000

19. Company X acquired Company Y when the carrying value of Company Ys plant was
$50 000. The fair value of the plant on acquisition date was $65 000. The company tax rate was
30%. How much is the amount of the business combination valuation reserve that must be
recognised?
Answer
$3 500
$10 500
$15 000
 $65 000

20. The key principle relating to the disclosure of information about business combinations is to
disclose information that:
Answer
enables users to evaluate the nature and financial effect of business combinations that
occurred during the period
enables the preparation of the consolidated financial statements in the most cost-effective
manner
does not give an advantage to the competitors of a business group
provides users with information about the parent entity only.

21. Xana Limited paid $110 000 for 60% of Yama Limited. At the date of acquisition Yama
Limited had share capital of $100 000 and retained earnings of $50 000 and all of Yama
Limiteds assets and liabilities were recorded at fair value. The fair value of identifiable net
assets acquired by Xana Limited amounted to:
Answer
$60 000
$90 000
$110 000
$150 000.

22. A subsidiary entity sold inventory to its parent entity at a profit of $8 000. The goods had
originally cost the subsidiary $20 000. At the end of the year all the inventory was still on hand.
The adjustment entry to deal with this transaction on consolidation would include the following
line item:
Answer
CR Cost of sales $28 000
CR Cost of sales $20 000
CR Cost of sales $12 000
CR Cost of sales $8 000.

23. Truong Limited acquired 60% of the shares of Quang Limited through the Australian
Securities Exchange. The share acquisition cost Truong Limited $500 000. As a result of the
share acquisition, Truong Limited gained control over Quang Limited. In its accounting
records, Truong will recognise:
Answer
an investment at a cost of $500 000
an investment with a market value of $300 000
an increase in share capital of $500 000
an increase in share capital of $300 000.

24. Nelson Limited has two subsidiary entities, Poggi Limited and Holly Limited. Nelson
Limited owns 100% of the shares in both entities. Details of issued share capital are: Nelson
Limited $100 000, Poggi Limited $30 000 and Holly Limited $15 000.
The worksheet adjustment entry made in order to determine the amount of consolidated share
capital is:
Answer
DR Share capital $145 000
CR Shares in subsidiaries $145 000
DR Share capital $100 000
CR Shares in subsidiaries $100 000
DR Share capital $45 000
CR Shares in Poggi Limited $30 000
CR Shares in Holly Limited $15 000
DR Share capital $145 000
CR Shares in Nelson Limited $100 000
CR Shares in Poggi Limited $30 000
CR Shares in Holly Limited $15 000

25. Jiminez Limited acquired 80% of the share capital and reserves of Mustang Limited for
$180 000. Share capital was $100 000 and reserves amounted to $50 000. All assets and
liabilities were recorded at fair value except buildings which was recorded at $10 000 below
fair value. If the company tax rate was 30%, and the partial goodwill method was adopted, the
NCI share of equity at the date of acquisition was:
Answer
$30 000
$31 400
$32 000
$36 000.

26. On 1 January 20X2 A Ltd acquired all the issued shares in B Ltd. At that date the inventory
of B Ltd had a carrying amount of $5 000 less than its fair value. The inventory was all sold by
30 June 20X4. At 30 June 20X5 the consolidation adjustment against inventory in relation to
the transaction will be:
Answer
a debit of $5 000
a credit of $5 000
a debit of $3 500
nothing

27. When an entity sells a non-current asset at a profit to another entity within the
same group the following adjustment is necessary on consolidation:

DR Asset
CR Cash

DR Cash
CR Asset

DR Gain on sale
 CR Asset

DR Asset

CR Gain on sale.
28. AASB 10 Consolidated Financial Statements, defines a parent and a subsidiary as:
Parent: An entity which owns more than 50% of the voting shares of another entity
Subsidiary: An entity in which another entity owns more than 50% of the voting
shares.
Parent: An entity which owns more than 20% of the voting shares of another entity

Subsidiary: An entity which is owned partly by another

entity. Parent: An entity that has one or more

subsidiaries
Subsidiary: An entity which is controlled by a parent entity

Parent: An entity that controls another entity

Subsidiary: An entity which is controlled by another entity

29. A subsidiary entity sold inventory to its parent entity at a profit of $4 000. The goods had originally
cost the subsidiary $10 000. At the end of the year all the inventory was still on hand. The adjustment
entry to deal with this transaction on consolidation would include the following line item:

CR Inventory $4 000
CR Inventory $6 000
CR Inventory $10 000
CR Inventory $14 000

30. JoJo Ltd provided an advance of $500 000 to its subsidiary BoBo Ltd. Interest of

$50 000 was charged during the year ended 30 June 20X8. On consolidation the
following adjustment is needed at 30 June 20X8 in relation to the interest charged:

no adjustment needed;

DR Interest revenue $50 000

CR Interest expense $50 000

DR Interest expense $50 000

CR Interest revenue $50 000

DR Retained earnings $50 000

CR Cash $50 000

 31. A Limited acquired B Limited for $110 000. At acquisition date the fair value of
the B Limiteds Land asset was $40 000 and the book value was $30 000. If the
company tax rate is 30%, which of the following is the appropriate adjustment to
recognise the tax effect of the business combination revaluation of land?

DR Deferred tax liability $3 000

CR Deferred tax liability $3 000
DR Deferred tax asset $3 000
CR Deferred tax liability $3 000

32. A subsidiary entity sold inventory to a parent entity for $30 000. The inventory
had previously cost the subsidiary entity $24 000. By reporting date the parent entity
had sold

75% of the inventory to a party outside the group. The company tax rate is 30%.
The adjustment entry in the consolidation worksheet at reporting date is:

Sales revenue Dr 30,000

Cost of Sales Cr 6,000
Inventory Cr 24,000
Deferred tax asset Dr 1,800
Income tax expense Cr 1,800

Sales revenue Dr 30,000

Cost of Sales Cr 28,500
Inventory Cr 1,500
Deferred tax asset Dr 450
Income tax expense Cr 450

Sales revenue Dr 22,500

Cost of Sales Cr 18,000
Inventory Cr 4,500
Deferred tax asset Dr 1,350
Income tax expense Cr 1,350

Sales revenue Dr 7,500

Cost of Sales Cr 6,000
Inventory Cr 1,500
Deferred tax asset Dr 450
Income tax expense Cr 450

33. AASB 10 Consolidated Financial Statements, requires that intragroup transactions be:

eliminated on consolidation to the extent of the parents interest in the subsidiary.

 adjusted for in the books of the parent and subsidiary to the extent of the parents interest in
the subsidiary

adjusted for in full in the books of the parent and subsidiary.

eliminated in full on consolidation

34. Eeny Limited has two subsidiary entities, Meeny Limited and Miney Limited.
Eeny Limited owns 100% of the shares in both entities. Eeny Limited has
$100,000 of issued share capital, Meeny Limited $30,000 and Miney Llimited
$15,000. The consolidated share capital amount of the Eeny Meeny Miney group
is:

$45 000
$55 000
$100 000
$145 000.

35. Non-controlling interest is classified, according to AASB 10 Consolidated

Financial

Statements, as:
part of the equity of the parent entity
part of the equity of the group
a liability of the parent entity
a liability of the group.

36. Which of the following is correct in relation to rights in the context of control?

The rights must be protective rights

The rights must arise from a legal contract
The rights may be administrative.
The rights must be substantive rights

37. According to AASB 12 Disclosure of

Interests in Other Parties, parent entities are
required to disclose:
I Summarised financial information about
each subsidiary
II A list of significant investments in
subsidiaries.
III If the subsidiary is not wholly owned, the
names of all other members.
IV The country of incorporation of
subsidiaries.

I, II and IV only

II, III and IV only

I and IV only
I, II, III and IV.

38. 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 Business Combinations, adjudges that:

A Limited and B Limited cease to exist and C Limited is the acquirer

The combined A Limited and B Limited, is the acquirer of C Limited
C Limited is considered to be the acquirer
C Limited is not to be
considered to be the acquirer

39. If the cost of a business combination is greater than the acquired interest in the
net fair value of the identifiable assets, liabilities and contingent liabilities of the
acquiree:

a gain on bargain purchase results

goodwill has been purchased and must be recognised
the difference is treated as a special equity reserve in the acquirers accounting
records
the difference is treated as a loss and immediately charged to profit or loss of
the period in which the business combination occurred.