Testbank

to accompany

Applying International
Accounting Standards
by
Alfredson, Leo, Picker, Pacter & Radford

Prepared by
Victoria Wise

John Wiley & Sons Australia, Ltd 2005

 -2-

CHAPTER 16 – Controlled entities – the consolidation method

Question 1

In a consolidated group of entities, control over the subsidiaries in the group:

A may not be shared control

B can be shared with other parties;
C can be less than 100% control;
D can be less than 50% control.

Question 2

The IASB Framework identifies seven user groups that are considered to be important in
determining the existence of a reporting entity. These users groups include all of the following
except:

A investors;
B preparers;
C lenders;
D suppliers and other trade creditors.

Question 3

All parent entities are required to present consolidation 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 parent’s 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.

A I and II only;
B I, II and III only;
C I, II and IV only;
D I, II, III and IV.

Question 4

Applying International Accounting Standards – Chapter 16

 -3-

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, IAS 27 Consolidated and Separate
Financial Statements, adjudges that:

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

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

Question 5

As required by IAS 27 Consolidated and Separate Financial Statements, where there are
transactions between members of the group, the effects of these transactions are:

A adjusted partially in direct proportion to the level of control held by the parent;
B adjusted in full on consolidation;
C adjusted in proportion to the equity held by the minority interests in the subsidiary;
D not adjusted in the consolidation process.

Question 6

Under the parent entity concept of consolidation, the minority interest in the subsidiary is:

A reported in the asset section of a balance sheet;

B reported in the equity section of a balance sheet;
C reported in the notes to the financial statements and not in the balance sheet;
D reported in the liability section of a balance sheet.

Question 7

The focus of the parent entity concept of consolidation is on the:

A minority interests in subsidiaries within the group as the primary users;

B equity holders of all entities within the group;
C parent’s equity holders as the prime user group;
D subsidiary’s equity holders as the prime user group.

Question 8

The consolidation concept that results in a group consisting of the assets and liabilities of the
parent and the parent’s proportional share of the assets and liabilities of the subsidiary, is known
as the:

Applying International Accounting Standards – Chapter 16

 -4-

A proprietary concept;
B comprehensive concept;
C entity concept;
D concise concept;

Question 9

The concept of consolidation that requires pro rata consolidation of subsidiaries is known as the:

A entity concept;
B proprietary concept;
C parent concept;
D subsidiary concept.

Question 10

If an investor entity owns more than half of the voting or potential voting power of an investee
and does not account for the investment as a subsidiary, IAS 27 Consolidated and Separate
Financial Statements, requires that the following disclosure be made:

A the reasons why the ownership of the investee does not constitute control;
B the nature of the relationship between the investor and investee;
C the nature of any restriction on the ability of the investor to transfer funds to the
investee;
D the amount of any repayments of borrowings between the investor and investee
during the period.

Question 11

If a parent entity chooses not to prepare consolidated financial statements, IAS 27 Consolidated
and Separate Financial Statements, requires the following disclosures in the separate financial
statements of the parent:

I. The name, country of residence and voting power of the directors of the parent.
II. That the exemption from consolidation has been used.
III. A list of significant investments including the proportion of ownership.
IV. A description of the method used to account for the investments.

A I, II and IV only;
B II, III and IV only;
C II and III only;
D IV only.

Applying International Accounting Standards – Chapter 16

 -5-

Question 12

According to IAS 27 Consolidated and Separate Financial Statements, parent entities are
required to disclose:

I. The fact that the statements are separate financial statements

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.

A I, II and IV only;
B II, III and IV only;
C I and IV only;
D I, II, III and IV.

Applying International Accounting Standards – Chapter 16

 -6-

ANSWERS

1 A

2 B

3 C

4 D

5 B

6 D

7 C

8 A

9 B

10 A

11 B

12 A

Applying International Accounting Standards – Chapter 16