lecture 1

Question 1

what are the types of investments

Answer 1

subsidiary (<50%) and associate (20%-50%)

Question 2

what accounting method is used for a subsidiary

Answer 2

acquisition method

Question 3

what accounting method is used for a associate

Answer 3

equity method

Question 4

What does IFRS 10 call a group

Answer 4

a parent and subsidiaries

Question 5

What does IFRS 10 call a parent

Answer 5

an entity that controls one or more entities

Question 6

What does IFRS 10 call a subsidiary

Answer 6

an entity that is controlled by another entity

Question 7

why would they go for a subsidiary

Answer 7

multinational operations
- sperate legal operations, legal systems
tax
- may be tax advantages
control
-reflect hierarchical structure
chronological events
- reflects history

Question 8

what is control

Answer 8

the power to govern accounting and financial policies

Question 9

what is meant by control

Answer 9

control exists when an investor has
power over investee, rights to variable from its involvement, affects the amount of investors returns

Question 10

what are the types of control

Answer 10

direct control >50% of voting right
indirect control <50% of voting right

Question 11

what is indirect control

Answer 11

• agreement with investors give power over 50%
• power over financials by agreement
• power to appoint or remove board members
• power to cast majority of votes

Question 12

what does the group control

Answer 12

All assets
all liabilities
of subsidiaries

Question 13

why is group accounts needed

Answer 13

• sub is an investment
• profits from holding comp and dividends from sub
• inter company trading
• difficult to evaluate board of directors without

Question 14

what are the reasons for preparing consolidated accounts

Answer 14

prevent manipulation
inflating sales
more meaningful EPS
better measurement of ROCE

Question 15

how are accounts combined

Answer 15

line by line basis

Question 16

how do you find net assets

Answer 16

equity
or
total assets - liabilities

Question 17

Assets calculation

Answer 17

liabilities + equity

Question 18

what does IFRS3 deal with

Answer 18

accounting for business combinations and the ongoing treatment of goodwill

Question 19

what steps need to be taken when applying the acquisition method

Answer 19

1. Identify the acquirer;
2. Determine the acquisition date;
   3.Recognise and measure the identifiable net assets acquired;
   4.Recognise and measure any non-controlling interest; and
3. Recognise and measure goodwill or gain from a bargain purchase

Question 20

what is meant by identify the acquirer

Answer 20

• over 50%
• power to govern by agreement
• power over the board
• voting control by agreement
• power over voting at board meetings

Question 21

how do you identify the acquirer

Answer 21

FV of one business is bigger than other

exchange of voting right for cash

management of one enterprise dominates selection of combined teams

Question 22

what is the acquisition date

Answer 22

the date which the acquirer obtains control

Question 23

what is the goodwill

Answer 23

the difference between the cost of combination and FV of the net assets

Question 24

what is fair value

Answer 24

the price that would be received to sell an asset or paid

Question 25

what is the recognition criteria for assets and liabilities

Answer 25

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