1: Consolidated Statement of Financial Position (CSFP)

Question 1

What are four motives to acquire influence in another company?

Answer 1

• to reduce competition in the marketplace
• to diversify into new markets (whether industry markets or geographical markets)
• to bring expertise in-house (e.g. retailers bringing manufacturing in-house)
• to benefit from synergies arising from the acquisition

Question 2

What is IFRS 10?

Answer 2

Consolidated financial statements

Question 3

What is the sole basis for consolidation?

Answer 3

Control

Question 4

Under IFRS 10, what is the first element that comprises control?

Answer 4

1. Power over the investee
   where the investor has existing rights that gives it the current ability to…
   direct activities that significantly affect the investee’s returns

Question 5

Under IFRS 10, what is the second element that comprises control?

Answer 5

2. Exposure, or rights to, variable returns from involvement in the investee

Question 6

Under IFRS 10, what is the third element that comprises control?

Answer 6

3. The ability to use power over the investee to affect the amount of the investor’s returns.

Question 7

IFRS 10 states that investors should do what?

Answer 7

Periodically consider whether control over an investee has been gained or lost.

Question 8

Describe when an investor…

Exercises the majority of voting rights in an investee

Answer 8

Hold more than half of the voting rights in an investee.

Usually in the form of ordinary shares.

Question 9

When can an investor holds the majority of the voting rights but no power.

Answer 9

This could be due to the companies actions being 
subject to direction by 
-government, 
-court administrator,
-receiver, 
-liquidator 
-regulator.

Question 10

What is IAS 1?

Answer 10

Presentation of Financial Statements

Question 11

What is IFRS 3?

Answer 11

Business combinations

Question 12

What is the aim of IFRS 3?

Answer 12

To specify how to account when one entity gains

control of another

Question 13

Are group consolidated financial statements produced alongside or instead of the individual financial statements?

Answer 13

Alongside

Question 14

What do we call it when negative Goodwill arises?

Answer 14

A bargain purchase?

Question 15

What do we do when negative goodwill arises?

Answer 15

Credit it directly to the statement of profit and loss

Question 16

What are the two allowable ways to measure goodwill and Non-controlling interest?

Answer 16

• Fair value method

- Proportion of net assets method

Question 17

Maybe add in the W1-5 proformas here?

Answer 17

OK

Question 18

How is fair value measured?

Answer 18

Using the market value of the subsidiary’s shares at the

date of acquisition

Question 19

How is Proportion of net assets measured?

Answer 19

By calculating their share of the fair value of the subsidiary’s net assets at acquisition.

Question 20

What is the double entry for Impairment of Goodwill for…

Fair Value Method?

Answer 20

DR NCI (NCI percentage)
DR Group Retained Earnings (Group percentage)

CR Goodwill (100% of the impairment)

Question 21

What is the double entry for Impairment of Goodwill for…

Proportion of net assets?

Answer 21

DR Group retained earnings (100% of the impairment)

CR Goodwill (100% of the impairment)

Question 22

What is the double entry for…

Immediate transfer of cash

Answer 22

Dr Investment in XX

Cr Cash

Question 23

What is the double entry for…

Immediate transfer of shares

Answer 23

Dr Investment in XX
Cr Equity share capital
Cr Share premium

Question 24

What is the double entry for…

Deferred cash

Answer 24

Dr Investment in XX

Cr Liability

Question 25

What is the double entry for... Deferred shares

Answer 25

Dr Investment in XX | Cr Other components of equity

Question 26

What is the double entry for... Contingent deferred cash

Answer 26

Dr Investment in XX | Cr Liability

Question 27

What is the double entry for... Contingent deferred shares

Answer 27

Dr Investment in XX Cr Other components of equity (shares to be issued in the future reserve)

Question 28

How do we value deferred cash at fair value?

Answer 28

Cash is discounted to present value

Question 29

How do you cancel the profit in PURP?

Answer 29

Reduce inventory | Increase cost of sales

Question 30

How do you treat cash and goods in transit?

Answer 30

As it they have been received.

Question 31

What kind of influence deems a company to be an associate?

Answer 31

Significant influence

Question 32

What are the five things that significant influence can be shown by?

Answer 32

▪ Representation on the board of directors ▪ Participation in the policy making processes ▪ Material transactions between the investor and investee ▪ Interchange of managerial personnel ▪ Provision of essential technical information

Question 33

How do you calculate entitled investment in associate?

Answer 33

Cost of investment X Add our share of post acquisition reserves (W5) X Less: Impairments of associates goodwill (X)

Question 34

What is the double entry when a parent sells to an associate?

Answer 34

Dr Group retained earnings | Cr Investment in associate

Question 35

What is the double entry when an associate sells to the parent?

Answer 35

Dr Group retained earnings | Cr Group Inventory

Question 36

What is the key factor with joint ventures?

Answer 36

No one party (venturer) should be in a position to control the activities.

Question 37

What is a Joint Venture?

Answer 37

A Joint venture is a joint arrangement whereby... - the parties have joint control of the arrangement and... - have rights to the net assets of the arrangement.

Question 38

How do joint ventures account for their investments?

Answer 38

Using the equity method

Question 39

What is a Joint Operation?

Answer 39

A Joint operation is a joint arrangement whereby... - the parties that have joint control of the arrangement - have rights to the assets and obligations for the liabilities, relating to the arrangement.

Question 40

What are the four things a joint operator should recognise in relation to its joint operation?

Answer 40

- Its assets - Its Liabilities - Its revenue from sale of its share of the output - Its expenses.

Question 41

In the separate financial statements of a parent company a subsidiary, associate or jointly controlled entity may be accounted for either:

Answer 41

▪ At cost; or ▪ In accordance with IFRS9 – Financial instruments (Measured at fair value with gains or losses taken to ‘other comprehensive income (FVTOCI’).