CONSOLIDATION METHOD

1.How is a negative goodwill reported on the consolidated statement of financial position?

a. A tenth of it is included in Consolidated reserves and the remainder reported as a reserve
b. Included fully in the Consolidated Retained Earnings
c. As a reserve, which may preferably be titled a capital reserve
d. As a negative asset – i.e. shown on the asset side but as a deduction

2. In the preparation of consolidated financial statements, the measurement of a NCI in the shareholders’
equity of a subsidiary at balance date may be affected by:
a. Unrealised profits arising from sales of inventories in the previous period by the subsidiary to
another subsidiary in the same group
b. Consolidation adjustments made against the retained profits of the subsidiary at the end of the
previous period. 
c. Management fees charged to the subsidiary by the parent entity
d. None of the above

3. A building has a cost in the books of the acquiree of $200m. It is being depreciated over 20 years, the
length of the lease. After 15 years, you buy the company and fair value the property at $400m. In the
consolidated books of account, annual depreciation will be recorded as:
a. $10m.
b. $27m
c. $80m
d. $20m

4. Which of the following is not an example of an intra-group balance?

a. A trade payable owing to a subsidiary by its parent company
b. A trade receivable owing to a subsidiary by an individual who is one of its customers
c. A loan made by a parent company to a subsidiary
d. A loan made by one subsidiary to another

5. The parent paid £480 to acquire 75% of 300 ordinary shares issued by the subsidiary on 1st January
2012 when shares in the subsidiary were quoted at 180p per share and the equity and reserves of the
subsidiary were reported as £350 and fair valuation of its assets identified a gain of £50. What is the
goodwill of the subsidiary on this date
a. £ 130
b. £215
c. £240
d. £ 180

6. When preparing a set of group financial statements, the correct treatment of dividends paid by a
subsidiary company to its non-controlling shareholders is to:
a. Ignore them completely
 b. Add them in the non-controlling interest column in the group statement of changes in equity
c. Deduct them in the non-controlling interest column in the group statement of changes in
equity
d. Cancel them against dividends received by the parent company

7. When preparing a group statement of comprehensive income, the correct treatment of dividends paid
by a subsidiary company to its non-controlling shareholders is to:
a. Subtract them from the profit attributable to the non-controlling interest
b. Ignore them completely
c. Add them to the profit attributable to the non-controlling interest
d. Cancel them against dividends received by the parent company

8. Which of the following statements is / are correct with regard to accounting for goodwill? (a) Goodwill
needs to be written off as soon as it is identified. (b) Goodwill is reported continuously as an asset unless
it is impaired, (c) Goodwill should be amortised over an estimated useful life, (d) Goodwill should be
amortised over an estimated useful life not exceeding twenty years
a. a
b. b & c 
c. b
d. c & d 

9. When preparing a consolidated Statement of financial position the identifiable non monetary assets of
the subsidiary need to be fair valued. Which of the following assets of the subsidiary need to be fair
valued? (a) Land and building appearing in the books of the subsidiary; (b) Trade receivables reported on
the subsidiary’s balance sheet; (c) Brand name the cost relating to which the subsidiary has already fully
written off; (d) Inventory reported on the subsidiary’s statement of financial position:
a. a, b & c
b. c & d
c. b, c & d
d. a , c & d

10. A parent company owns 73% of a subsidiary's ordinary shares. The non-controlling interest in the
group statement of financial position is measured at the appropriate proportion of the subsidiary's
identifiable net assets. An impairment loss in relation to goodwill arising on consolidation should be
accounted for in the group statement of comprehensive income as follows:
a. Recognise 73% of the impairment loss as a group expense but make no further adjustments
b. Do nothing
c. Recognise 100% of the impairment loss as a group expense
d. Recognise 73% of the impairment loss as a group expense and subtract the remaining 27% from
the profit attributable to the non-controlling interest

11. If the capital and reserves, including fair valuation gain of a subsidiary is £5,400 and the parent
acquires the whole of it for £4,000, the difference of £1,400 would be known as
a. Badwill
 b. Gain on acquisition 
c. Negative goodwill
d. Goodwill 

12. Which of the following is not a classification for intangible assets under IFRS 3?
a. Internal development
b. Artistic-related
c. Technology-based
d. Customer-related

13. Goodwill should be:

a. Tested annually for impairment or amortised
b. Tested annually for impairment
c. Tested for impairment annually, or more frequently, if required. 
d. Amortised

14. An acquirer should at the acquisition date recognize goodwill acquired in a business combination as
an asset. Goodwill should be accounted for as follows:
a. Recognize as an intangible asset and amortize over its useful life.
b. Recognize as an intangible asset and impairment test when a trigger event occurs.
c. Recognize as an intangible asset and annually impairment test (or more frequently if
impairment is indicated).
d. Write off against retained earnings.

15. What is the amount of the unrealised profit to be eliminated if the parent’s year-end inventory
includes at £540,000 goods invoiced to it by its 60% owned subsidiary at cost plus 25%.
a. £64,800
b. £108.000
c. £81,000
d. £135,000

16. When preparing a consolidated statement of financial position the identifiable non monetary assets of
the subsidiary need to be fair valued for which of the following reason / reasons? (a) To inform the
acquired company what its assets are worth in the market; (b) To comply with the practice followed over
the years; (c) To report each of the subsidiary’s assets at what it cost the group to acquire; (d) To identify
the amount paid for goodwill as the residual not attributed to other assets
a. c & d
b. a, c & d 
c. a , b & c
d. b, c & d 

17. When would it be more advantageous for a purchaser to acquire a company's assets rather than its
shares?
 a. The company to be acquired has large tax loss carryovers that it will be unable to use
b. The purchaser plans to retain the acquired enterprise as a separate entity.
c. The company to be acquired has capital assets that have fair values which exceed their book
values.
d. The book value of the seller's shares is lower than the market value of the shares

18. In an accounting period, a parent company has pre-tax profits of £5 m and profits after tax of £3.5 m.
Its 75% subsidiary has pre-tax profits of £2 m and profits after tax of £1.4 m. The profit attributable to the
non-controlling interest is:
a. £1,750,000
b. £350,000
c. £500,000 
d. £1,225,000

19. Select the correct statement with regards to intragroup balances and transactions during consolidation:
a. Intragroup balances and transactions must be eliminated to the extent of non-controlling interest
b. Intragroup balances and transactions do not have to be eliminated
c. Intragroup balances and transactions must be eliminated in proportion to the percentage of
effective ownership
d. Intragroup balances and transactions must be eliminated

20. Which of the following acquisition-related costs are not expensed in the period incurred?
a. Accounting fees
b. Finder's fees
c. Valuation fees
d. Cost of issuing debt

21. On the acquisition of a subsidiary by an investor, purchased goodwill should be:

a. Recognised in the financial statements of either the subsidiary or investor
b. Recorded in a consolidation adjusting entry
c. Recognised separately in the financial statements of the investor only
d. Recorded separately in the financial statements of the subsidiary only

22. Which of following items should have impact on the non-controlling interest on consolidated financial
statements?
a. Amortised amount of relaluation reserve
b. Revaluation entries at acquisition date 
c. Unrealised intragroup profit of downstream transaction
d. Investment elimination entry

23. According to IFRS 10, NCI is classified as:

a. Part of the equity of the parent entity
b. Part of the equity of the group
 c. A liability of the group
d. A liability of the parent entity

24. For which information should an adjustment entry NOT be posted for an investment in associate?
a. Gain on bargain purchase
b. Realisation of unrealised inter entity profit 
c. Dividend distribution 
d. Positive goodwill

25. When preparing a Consolidated Income Statement, inter-company transactions are cancelled. Which
one or more of the following would you say is the reason for this step? (a) That is how it is expected to be
done. (b) Otherwise group earnings can be inflated by one within the group earning from another, (c)
Otherwise the same amount is double counted both as an income and expense, (d) Failure to do so would
be bad for the group image
a. b & c
b. a & c
c. c & d
d. b & d

26. When preparing a consolidated statement of financial position, pre-acquisition portion of subsidiary’s
retained earnings need to be frozen by off setting it from the cost of investments. Which of the following
is / are the reason for this? (a) That portion of profit has been paid for by the parent as part of its
investment; (b) It is not ethical for the parent to claim profits made before a company became a
subsidiary; (c) To establish the true cost to the parent of acquiring the subsidiary’ s goodwill; (d)
Otherwise group profits are inflated by acquiring subsidiary’s with high retained earnings.
a. c & d
b. a & c
c. b & c
d. b & d

27. In acquiring Au Ltd., Trinh Ltd. included a provision for contingent consideration. The value of this
consideration will be determined by an event that will occur after the acquisition date. How should the
recognition of the amount of the contingency be accounted for?
a. As an adjustment to the acquisition value
b. As an adjustment to retained earnings
c. As a gain/loss on the statement of comprehensive income
d. As an adjustment to goodwill 

28. The amount of profit attributable to the non-controlling interest in a 90% subsidiary is equal to:
a. 10% of the subsidiary's profit after tax
b. 10% of the group profit before tax
c. 10% of the group profit after tax
d. 10% of the subsidiary's profit before tax
29. When preparing a consolidated statement of financial position any profit made by one member of the
group against another should be eliminated unless it has been realised by disposal to some one outside the
group. Which of the following is / are the reason(s) for this? (i) Because an entity cannot make a profit
against its own self; (ii) Because it is fashionable to do so; (iii) Because subsidiary’s assets needs to be
reported at the amount each cost the group; (iv) Because the unsold goods may have to be returned to the
party purchased from
a. iii& iv
b. i & ii
c. i & iii
d. ii & iii

30. Negative goodwill should be:

a. Recorded in the income statement.
b. Ignore
c. Matched to future losses.
d. Allocated to non-current assets.

31. Which of the following is an example of an intra-group item which is cancelled out when preparing
the group statement of comprehensive income?
a. Administrative fees charged by a parent to a subsidiary
b. Interest payable by a subsidiary to its parent
c. Management expenses charged by one subsidiary to another
d. All of the above

32. Which of the following is not an acceptable method for valuing intangible assets?
a. Income-based
b. Cost-based
c. Tax-based
d. Market-based

33. For identifying the group profit for the current year at which of the following points is the profit
relating to non controlling interest removed.
a. After identifying the gross profit
b. After identifying the operating profit
c. After identifying the profit for the year after tax
d. After identifying the net profit before tax

34. As at the year end the parent’s statement of financial position reports rent receivable as an asset at
£600 and this includes £150 due from the subsidiary. Subsidiary reports rent payable as £150. Which of
the following will be included in the consolidated statement of financial position?
a. Rent receivable as an asset at £600 and report nothing as current liability
b. Rent receivable as an asset at £450 and report nothing within Current liabilities as rent
payable
c. Rent receivable as an asset at £600 and rent payable as a current liability at £150.
 d. Rent receivable as an asset at £450 and rent payable as a current liability at £150

35. With regard to preparing consolidated income statement which of the following statements are
correct? (a) Only the group portion of subsidiary’s sales, cost of sales and expenses are included. (b) Non
controlling interest is identified immediately after consolidating operating profit, (c) Consolidated
movement of equity includes only the parent company’s dividend, (d) Only the group portion of the
subsidiary’s post acquisition profit in brought forward in the consolidated movement of equity.
a. a, c & d
b. b & d
c. c & d
d. a, b & c