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ACCA F7 FLASHCARDS

SET1
1.What is the title of Working 4 B?
The title of Working 4 B is NCI for the Consolidated Statement of Income. In fact, the nci do not
appear on the Consolidated Statement of Income. The figure is needed to be calculated in order to
complete the calculation of Working 4 A, the nci on the Consolidated Statement of Financial Position.
2. What is the title of Working 4 A?
The title of Working 4 A is NCI for the Consolidated Statement of Financial Position
3. What is the basis for the calculation of Consolidated Retained Earnings for the Consolidated
Statement of Financial Position?
The basis for the calculation of Consolidated Retained Earnings for the Consolidated Statement of
Financial Position is:
* the parent entitys own retained earnings, plus
* the parents share of the subsidiarys post-acquisition retained earnings, less
* the parents share of any impairment of goodwill
4. What is the basis of the calculation of the non-controlling interest investment for the
Consolidated Statement of Financial Position (W4A)?
The basis of the calculation of the non-controlling interest investment for the Consolidated Statement of
Financial Position (W4A) is:* value at date of acquisition, plus
* share of subsidiarys post acquisition retained earnings, less
* share of any impairment of goodwill
5. When preparing a Consolidated Statement of Income, we are told that during the year the
subsidiary sold goods to the parent with a selling value of $27,000. The goods had cost the
subsidiary $27,000. What adjustment is necessary?
When preparing a Consolidated Statement of Income, we are told that during the year the subsidiary sold
goods to the parent with a selling value of $27,000. The goods had cost the subsidiary $27,000. The
adjustment necessary is to deduct $27,000 from both the combined revenue and the combined cost of
sales
6. The parent has a 75% holding in a subsidiary. Before the year end, the subsidiary directors
declared a dividend of $6,000. How much dividend should be deducted from the subsidiarys
retained earnings in the calculation of consolidated retained earnings ( Working 3 )?
The parent has a 75% holding in a subsidiary. Before the year end, the subsidiary directors declared a
dividend of $6,000. $6,000 dividend should be deducted from the subsidiarys retained earnings in the
calculation of consolidated retained earnings ( Working 3 )?

7. 3 months into the accounting year, the parent sold an item of plant and machinery to the
subsidiary and recorded a profit on sale of $40,000. At that date, the asset had a remaining
estimated useful life of 4 years. Depreciation is charged on a month by month basis. What is the
value of the provision for unrealised profit?
The value of the provision for unrealised profit is $32,500 ($40,000 $7,500 (25% * $40,000 * 9/12))
8. What could be the situations where the cost of acquisition plus the value of the non-controlling
interest is actually less than the fair value of the subsidiarys net assets at the date of acquisition?
The situations include:
* where the fair values attributed by the acquirer to the subsidiary net assets are greater than the carrying
value of those assets in the subsidiarys records
* where the acquirees owners were in a forced sale situation
* where the acquirees owners are simply looking to sell their entity because, for example, of approaching
retirement
9. In what situation is the Statement of Financial Position of the subsidiary time-apportioned?
The Statement of Financial Position of the subsidiary is never time-apportioned
10. When a subsidiary has sold goods to the parent and the parents inventory is overvalued by the
unrealised profit calculated as $2,760, the adjustment for $2,760 is deducted from the Retained
Earnings of which entity?
When a subsidiary has sold goods to the parent and the parents inventory is overvalued by the unrealised
profit calculated as $2,760, the adjustment for $2,760 is deducted from the Retained Earnings of the
subsidiary?
11. When a parent sells $130,000 goods to a subsidiary achieving margin of 30% and the subsidiary
has a quarter of these goods in inventory at the year end, what value is the provision for unrealised
profit?
When a parent sells $130,000 goods to a subsidiary achieving margin of 30% and the subsidiary has a
quarter of these goods in inventory at the year end, the provision for unrealised profit is $9,750 ( * 30%
* $130,000)
12. When a parent sells $130,000 goods to a subsidiary at a mark up of 30% and the subsidiary has
none of these goods in inventory at the year end, what value is the provision for unrealised profit?
When a parent sells $130,000 goods to a subsidiary at a mark up of 30% and the subsidiary has none of
these goods in inventory at the year end, no provision for unrealised profit is required
13. When attempting a consolidation exercise, what is the title of Working 2?
When attempting a consolidation exercise, the title of Working 2 is Goodwill
14. When attempting a consolidation exercise, what is the title of Working 1?

When attempting a consolidation exercise, the title of Working 1 is Group Structure


15. When the non-controlling interest is valued on a full, fair value basis, what is the basis of the
allocation of any impairment in the value of the subsidiarys goodwill?
When the non-controlling interest is valued on a full, fair value basis, the basis of the allocation of any
impairment in the value of the subsidiarys goodwill is in proportion to the shares held by the parent
compared with the shares held by the non-controlling interest
16. There are three ways in which the examiner can give you information to calculate the value of the
non-controlling interest investment as at date of acquisition on a full, fair value basis.
What are these three ways?
he three ways are:

telling you the value of the investment

telling you the value of the goodwill attributable to the non-controlling interest

telling you the value of the subsidiarys shares immediately before acquisition

17. When the non-controlling interest is valued on a proportional basis, how is the share of any
impairment in the value of goodwill allocated?
When the non-controlling interest is valued on a proportional basis, any impairment of goodwill is
allocated entirely to the parent entity
18. What are the two different ways in which the investment of the non-controlling interest may be
measured?
The investment of the investment of the non-controlling interest may be measured on a proportional basis
or on a full, fair value basis
19. What is a non-controlling interest?
A non-controlling interest is the interest of the owners of the subsidiary shares not owned by the parent
entity
20. When are two entities considered to be related parties?
Two entities are considered to be related if:
* one entity has the ability to control the other entity
* one entity has the ability to exercise significant influence over the other entity
* the two entities are under common control
21. What is the definition of control of an investee?

Control of an investee is defined as an investor controls an investee when the investor is exposed, or has
rights, to variable returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee
22. What is a rebuttable presumption?
A rebuttable presumption is a presumption which is taken to be true unless it can be shown otherwise
23. When is an investee classed as an associate?
An investee is classed as an associate when the investor holds a significant influence in the investee
24. In what circumstances is it permitted for an entity not to prepare consolidated financial
statements even though it holds greater than 50% of the voting power of another entity?
* the investee company has been classified as an asset held for sale
* the investor does not have control over the investee for example where the investee is in liquidation
* the investor is itself a wholly owned subsidiary of another entity
* the subsidiary is immaterial in the context of the total activities of the two entities
* the shares of the investor are not traded on a recognised stock exchange
25. When must an entity prepare consolidated financial statements?
An entity must prepare consolidated financial statements when the entity has had control over another
entity at any time within the accounting period
SET2
1.In the context of asset impairments, what is the definition of a cash generating unit?
In the context of asset impairments, a cash generating unit is defined as:
the smallest group of identifiable assets which generates cash inflows independently of other assets or groups of assets
2. In the context of asset impairments, of what is CGU the abbreviation?
In the context of asset impairments, CGU the abbreviation for a Cash Generating Unit
3. In the context of asset impairments, what is the definition of recoverable amount?
In the context of asset impairments, recoverable amount is the higher of value in use and fair value less costs to sell
4. When considering whether an asset needs to be impaired, the carrying value should be compared with what other value?
When considering whether an asset needs to be impaired, the carrying value should be compared with the recoverable amount of that asset
5. What is the definition of development expenditure?
Development expenditure is defined as:the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services
before the start of commercial production or use
6. In the context of research and development expenditure, what is the appropriate treatment of applied research as distinct from pure research?
In the context of research and development expenditure, the appropriate treatment of applied research as distinct from pure research is to expense it in the Statement of Income. Pure
research is treated in exactly the same way expense in the year in which it is incurred.
7. In the context of goodwill, what is the appropriate treatment for goodwill which has been internally generated?

In the context of goodwill, the appropriate treatment for goodwill which has been internally generated is to ignore it completely
8. In the context of intangible assets, what is the difference between an asset with an infinite life and an asset with an indefinite life?
n the context of intangible assets, an asset with an infinite life is an asset which is expected to live forever whereas an asset with an indefinite life is one where it is accepted that the asset will
be used up over a period of time, but we are unable to determine a reasonable estimate of just how long that life may be
9. What are the two methods of measuring the value of an intangible asset?

The two methods of measuring the value of an intangible asset are:

the cost model, and

the revaluation model

10. Where an investment property is held under the fair value model, what is the appropriate treatment for this asset?
Where an investment property is held under the fair value model, the appropriate treatment for this asset is to:revalue the asset at the end of every year
show any gain or loss within the Statement of Income
do not charge depreciation on the asset

11.