PSBA Integrated Review

Financial Accounting and Reporting – Theory Christian Aris Valix

Investment in Associate

1. It is an entity over which the investor has significant influence.

a. Associate
b. Investee
c. Venture capital organization
d. Mutual fund

2. Which statement best describes significant influence?

a. The holding of a significant proportion of the share capital of another entity

b. The contractually agreed sharing of control over an economic entity
c. The power to participate in the financial and operating policy decisions of an entity
d. The mutual sharing in the risks and benefits of a combined entity

3. Which statement is incorrect concerning the equity method?

a. The investment is initially recorded at cost.

b. The investment is affected by the investor’s share in the profit or loss of the investee
c. The investor’s share in the profit or loss of the investee is recognized in the investor’s
profit or loss
d. Dividends received from the investee are recognized as income

4. If an associate has outstanding noncumulative preference shares held by outside interests, the
investor computes share of profit or loss

a. After adjusting for preference dividends which were actually paid during the year
b. Without regard for preference dividends
c. After adjusting for preference dividends only when declared
d. After adjusting for preference dividends, whether declared or not

5. Goodwill arising from an investment in associate is

a. Included in the carrying amount of the investment and amortized over the useful life
b. Included in the carrying amount of the investment and not amortized
c. Charged to retained earnings
d. Charged to expense immediately

6. How is the impairment test carried out for an associate?

a. The goodwill impairment is tested individually

b. The entire carrying amount of the investment is tested for impairment by comparing the
recoverable amount with the carrying amount
c. The carrying amount of the investment is compared with the market value
d. The recoverable amounts of all investments in associates shall be associated together
7. An investor shall discontinue the use of the equity method when

a. The investor ceases to have significant influence over the associate

b. The associate operates under severe long-term restrictions
c. The investor ceases to have control over the associate
d. The business activities of the investor and associate are dissimilar

8. When an investment ceases to be an associate, it shall be accounted for at

a. Fair value through profit or loss

b. Fair value through other comprehensive income
c. Cost
d. All of the above

9. On the loss of significant influence, the difference between the fair value and carrying
amount of the retained investment is recognized in

a. Other comprehensive income

b. Profit or loss
c. Directly in retained earnings
d. Share capital

10. An investor uses the equity method. Amortization of the investor’s share of the excess of fair
value over the carrying amount of depreciable asset at the acquisition date shall be reported
in

a. Other expense
b. Depreciation
c. Equity in earnings of the investee
d. Amortization of goodwill

11. The excess of investor’s share of the net fair value of the associate’s net assets over the cost
of the investment is

a. Included in the investor’s share in the profit or loss.

b. Credited to retained earnings directly
c. Included in other comprehensive income
d. A deferred gain

END