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advanced financial accounting

Questions and Answers of Advanced Financial Accounting

Alpar Corporation formed a wholly owned subsidiary, Besub Enterprise, in country X (whose currency is the FC) on 31 December 20x0 with an initial paid-up capital of FC 10,000,000. Besub reported
If a subsidiary sells equipment to its parent and recognizes a loss on sale in the previous year and the loss is not indicative of an impairment loss, which of the following is true? True/False(a) A
On 1 January 20x3, P Co acquired 90% of the ownership interest of Y Co for $2,000,000. At that date, the following relate to Y Co:It was estimated that the intellectual property had a remaining
P Co acquired a controlling interest in 90% of X Co. The financial statements of P Co and X Co and other relevant details are shown below. All figures are in dollars, unless as otherwise
Refer to the information in P5.2.Required1. If Jewel could legitimately structure the relationship with Opal such that it could equity account rather than consolidate Opal’s financial statements,
On 1 January 20x1, P Co acquired 70% of S Co by issuing 1,000,000 new shares to the owners of S Co. The fair value of consideration paid by P Co to acquire S Co was $2,100,000. The fair value of
On 1 January 20x3, P Co acquired a 90% interest in Y Co. On that date, the fair value of non-controlling interests in Y Co was $180,000. A year later, on 1 January 20x4, P Co acquired a 30% interest
P Co acquired a 90% ownership interest in Y Co on 1 January 20x3. At the date of acquisition, the share capital of Y Co was $1,000,000, and the retained earnings balance was $500,000. The book values
P Co acquired an interest in Y Co and Z Co. Details of the acquisitions are as follows:Inventory of Y Co at acquisition date was sold to third parties within six months of acquisition. Intangible
The financial statements of P Co, Y Co, and Z Co are shown below.P acquired an interest in Y Co and Z Co as follows:Additional information:(a) On 1 January 20x5, Y Co transferred machinery to P Co at
P Co acquired Y Co and Z Co as follows:Additional information:(a) P Co transferred excess inventory to Y Co as follows:(b) On 1 January 20x6, Y Co transferred its fixed asset to P Co at a transfer
Prism Co has “control” over Silver Co and “significant influence” over Amber Co. The financial statements for 20x6 are shown below. All figures are in dollars, except otherwise
Prism Co has “control” over Silver Co and “significant influence” over Amber Co. The financial statements for 20x6 are shown below. All figures are in dollars, except otherwise indicated.Fair
P Co acquired interests in X Co and Z Co. Their current financial statements are shown below. All figures are in dollars, unless otherwise indicated.Fair and book values of identifiable net assets of
The financial statements of P Co, its subsidiary Silver Co, and its associate Ruby Co for the current year ended 31 December 20x6 are shown below.Fair and book values of identifiable net assets of
P Co acquired an interest in Sapphire Co and Amber Co. The financial statements for the current year ended 31 December 20x6 and other relevant details are shown below:Fair and book values of
P Co acquired interests in Z Co. The current financial statements are shown below. All figures are in $ unless as otherwise indicated.Fair and book values of identifiable net assets of Z Co as at
P Co acquired interests in Amber Co. The current financial statements are shown below. All figures are in dollars, unless as otherwise indicated.Fair and book values of identifiable net assets of
P Co and T Co formed a special purpose entity Z with the sole purpose of acquiring its output of extracted minerals. P Co and T Co agreed on the contractual sharing of power that required unanimous
Refer to P6.19 . If the joint arrangement is a joint venture with ownership interests of 50% each in Z, show the equity accounting entries and the final balance in the Investment in Z for the year
P Co acquired interests in Silver Co and Amber Co. Their current financial statements are shown below. All figures are in $ unless as otherwise indicated.Fair and book values of identifiable net
P Co acquired interests in Silver Co and Amber Co. Their current financial statements are shown below. All figures are in $ unless as otherwise indicated.Fair and book values of identifiable net
P Co acquired interests in Silver Co and Amber Co. Their current financial statements are shown below. All figures are in $ unless as otherwise indicated.Fair and book values of identifiable net
P Co acquired interests in X Co and Z Co. Their current financial statements are shown below. All figures are in $unless as otherwise indicated.Fair and book values of identifiable net assets of each
Information pertaining to the group structure of A Ltd is as follows:Extracts of the 20x4 financial statements of the companies are shown below:Required1. Prepare the necessary elimination and
Extracts of financial statements of P, X, Y and Z for the year ended 31 December 20x5 are as follows:Additional information:(a) All intercorporate investments were acquired prior to 1 January 20x5. Y
On 2 January 20x1, P Ltd paid $316,000 to acquire 160,000 ordinary shares (issued at $1 per share) in SA Ltd. At that point, SA Ltd’s retained earnings were $100,000. SA Ltd had an issued share
Refer to P7.3 . If SA had only “significant influence” over SB, show how the journal entries will differ from P7.3 above.Data from P7.3On 2 January 20x1, P Ltd paid $316,000 to acquire 160,000
Refer to P7.3 . If SA and SB are only associate companies in the hierarchical structure, show the necessary journal entries that need to be passed by P in its financial statements using the equity
The following information relates to the acquisition of S Co, A Co, and B Co.Additional information(a) Intangible assets of S Co had an estimated useful life of five years from the date of
The details of acquisition of Y Co, Z Co, and W Co are shown below.Additional information(a) Inventory of Y Co at the date of acquisition was disposed of in 20x4 while that of W Co was disposed of in
The financial statements of P Co, Y Co, Z Co, and W Co for the year ended 31 December 20x5 are shown below:Additional information(a) Amortization of fair value adjustments:(i) Undervalued inventory
P Co had direct and indirect interests in the following companies as at 1 January 20x0:On 1 January 20x0, a transfer of fixed assets was made as follows:RequiredShow the equity accounting and
P acquired S in two successive purchases resulting in control on 31 December 20x0. Details of the purchases and other information relating to S are shown below:Book value of net identifiable assets
Consider the following alternative scenarios relating to an investor company P Co’s investment in another company, known as X Co.Scenario: P Co increases ownership interest in X Co from 60% to
Scenario: P Co decreases ownership interest in X Co from 95% to 70%RequiredDetermine the amounts of the following items (if any) arising at the date of the most recent transaction in each scenario:1.
Scenario: P Co increases ownership interest in X Co from 40% to 60%RequiredDetermine the amounts of the following items (if any) arising at the date of the most recent transaction in each scenario:1.
Scenario: P Co decreases ownership interest in X Co from 80% to 50%RequiredDetermine the amounts of the following items (if any) arising at the date of the most recent transaction in each scenario:1.
The financial statements of P Co and its subsidiaries and associate show below:Additional information1. During 20x2, X Co recognized a litigation settlement of $200,000 in respect of the provision
The financial statements of P Co and its subsidiaries and associate are shown below:Additional information1. Intangible assets of B Co had an indefinite useful life. On 31 December 20x6, the annual
The financial statements of P Co and its subsidiaries and associate are shown below:Additional information1. Intangible assets of B Co had an indefinite useful life. On 31 December 20x6, the annual
Distinguish between operating exposure and accounting exposure.
What are the two types of accounting exposure and how do they arise?
Explain the treatment of translation differences under the translation process (closing rate method) and the remeasurement method.
If the functional currency of a foreign subsidiary is the local currency, is there any translation adjustment arising from goodwill on acquisition of a foreign subsidiary?Explain.
If Apollo’s functional currency is the FC, which of the following statements holds?(a) A translation gain of $480,000 is recorded in income.(b) A translation loss of $480,000 is taken to Foreign
What is the gain or loss in dollars that arose in 20x1 arising from the movement in net exposed items?(a) Remeasurement loss of $3,700(b) Remeasurement gain of $3,700(c) Translation loss taken to
On 31 December 20x1, Quixote Company, whose functional and presentation currency is the dollar, acquired 30% of the share capital of Sanchoz Company, whose functional currency is the FC, for
On 2 January 20x4, P Co acquired controlling interest in 90% of Topaz Co through the following transfers to Y Co, the former owners of Topaz. P Co expects significant synergies from Topaz Co’s
P Co obtained control of S Co on 1 July 20x6, which has two divisions: Trading and Manufacturing. Each is a “cash-generating unit” as defined by IAS 36 Impairment of Assets. P Co chose to measure
On 1 January 20x5, Company A acquired all the 800,000 ordinary shares in Company B for $900,000 in cash. The carrying amount or book value of net assets of Company B as at the date of acquisition
An adjustment needs to be made to the unrealized profit included in the inventory balance to avoid the understatement of group profits and the overstatement of group assets. True/False
Revenue is recognized in group accounts only when the control of inventory are transferred to a third party. True/False
In a downstream sale, when a parent sells to its subsidiary, non-controlling interests’ share of current profit is reduced by the latter’s share of the unrealized profit. True/False
If an item purchased at a marked-up price from a group company in the previous year remains unsold at the end of the current year, group inventory and gross profit will have to be reduced. True/False
Assuming the situation in CQ5.10 , group depreciation expense in each subsequent year of sale will(a) Not be subject to any adjustment. True/False(b) Be the sum of the parent’s and subsidiary’s
If a subsidiary sells equipment to its parent in the current year at a loss because the value of the equipment is impaired, which of the following is true?(a) A consolidation adjustment to reverse
P Co acquired a controlling interest of 90% in X Co on 1 January 20x3. The financial statements for the year ended 31 December 20x6 and other information are provided below.Additional information(a)
P Co acquired an interest in X Co and Z Co. Details of the acquisitions are as follows:Additional information(a) Undervalued inventory was sold in 20x4.(b) Unrecognized intangible asset of Z Co was
Explain why power in itself a sufficient basis is not to determine control.
Acquisition accounting requires special accounting treatment that is not permitted or required in normal accounting outside of a business combination. Provide at least three examples of special
During January 20x5, P Co performed due diligence tests on S Co. On 1 February 20x5, P Co completed the purchase of 80% of S Co from V Co, the existing owner of S Co.The following expenditures were
A Co acquires a controlling interest in B Co. The following information relates to transactions occurring on or before the acquisition date, 1 July 20x0:The financial year end falls on 31
Under the terms of a contract between Topaz Ltd and Diamond Pte Ltd, Topaz will issue 5,000,000 shares to the existing shareholders of Diamond in exchange for the entire 2,000,000 shares of
On 1 January 20x6, Company X acquires the entire share capital of $500,000 comprising of 500,000 ordinary shares in Company Y. Retained earnings as that date amounted to $100,000. In previous years,
Goodwill is the difference between consideration transferred and the share of fair value of the net assets of a subsidiary. True/False
Goodwill impairment losses in previous years will have to be credited to opening retained earnings in the consolidation workpapers. True/False
A group may comprise a parent, its subsidiaries, and the subsidiaries of its subsidiaries. True/False
The consolidation adjustment to eliminate the parent’s investment and the subsidiary’s equity at the date of acquisition is passed once in the first year of acquisition and not subsequently.
The adjustment in (5) above, that is, the elimination entry as at the date of acquisition is an “asset substitution” entry. It transforms the investment asset into goodwill and the fair value of
Non-controlling interests’ share of a subsidiary’s retained earnings from the date of acquisition to the beginning of the current period will result in a debit entry to non-controlling interests
Non-controlling interests of profitable subsidiaries result in a credit item in the income statement and a debit balance in the statement of financial position. True/False
Dividends declared by a group will include dividends declared by the parent and dividends declared by a subsidiary to its non-controlling interests. True/False
It is possible for a group to show a consolidated net profit after tax that is smaller than the consolidated profit retained by the group. True/False
Equity components, which are not present ownership interests and do not entitle their holders to a pro-rata share of net assets during liquidation, do not qualify as non-controlling interests under
Equity components, which are not present ownership interests and do not entitle their holders to a pro-rata share of net assets, are measured at nil balance at the date of acquisition. True/False
IFRS 10 Consolidated Financial Statements requires the allocation of profit to non-controlling interests even if the allocation would result in a debit balance of non-controlling interests. This
Prince Ltd bought 80% of Silver Ltd on 1 January 20x1 for $230,000 when Silver’s statement of financial position was as follows:Fixed assets had a remaining useful life of five years as at 1
The statement of financial position of Subsidiary Co as at 31 December 20x0, the date it was acquired by Parent Co, and income statements for Parent Co and Subsidiary Co for the year ended 31
On 1 January 20x4, P Co acquired 90% of S Co. Details of S Co as at the date of acquisition are as follows:Remaining useful life for the fixed assets as at acquisition date was five years and
P Co acquired control of Jasper Co through acquisition of 90% in the voting rights of Jasper Co on 1 July 20x2. A cash transfer of $2,000,000 was made to the former owners of Jasper Co. P Co elects
Assume the same facts as in P4.5, except that P Co elects to measure non-controlling interests as a proportion of identifiable net assets.Required:1. Prepare the consolidation adjusting entries for
P Co acquired a controlling interest in Moonstone as follows:P Co chose to measure non-controlling interests at fair value on acquisition date. The fair value of non-controlling interests in
Assume the same facts as in P4.7, except that P Co elects to measure non-controlling interests as a proportion of identifiable net assets.Required:1. Prepare the consolidation adjusting entries for
P Co acquired control of Sapphire Co on 1 July 20x8 by acquiring 90% of the ordinary shares and stock options of Sapphire Co through paying cash of $200,000,000 to the former owners of Sapphire Co. P
Assume the same facts as in P4.9, except that P Co measures non-controlling interests as a proportion of identifiable net assets. Assume that the ordinary shares and stock options share
P Co acquired an ownership interest of 90% in X Co and obtained control on 1 January 20x3.On acquisition date, the fair value of fixed assets of X Co was $1,400,000 while the book value of fixed
P Co obtained control of Y Co on 1 January 20x4 by acquiring a 90% interest in Y Co. Share capital of Y Co was $900,000 and its retained earnings at date of acquisition was $300,000. Fair value of
On 2 January 20x4, P Co purchased from X Co, a controlling interest of 90% interest in Sapphire Co, a company that has an on-going research and development (R&D) project. On 2 January 20x4, P
P Co purchased an 80% interest in S Co, which has two divisions: Paints and Chemicals. Each of these two divisions has cash flows that are independent of each other. Hence, they are deemed as
P Co obtained control of S Co on 1 July 20x6, which has two divisions: Trading and Manufacturing. Each is a “cash-generating unit” as defined by IAS 36 Impairment of Assets. P Co chose to measure
Payables and receivables in the group statement of financial position include balances with associate companies. True/False
Dividend income in the profit or loss of a parent company should be eliminated against dividend payable in the statement of financial position of a subsidiary company. True/False
A profit from an intercompany sale would result in either a higher cost of sales in the income statement or a higher inventory balance in the statement of financial position of the buying company.
The parent’s theory underlies the procedure for reducing non-controlling interests’ share of current profit with their share of unrealized profit arising from an upstream sale. True/False
If an item purchased at a marked-up price from a group company in the previous year is resold in the current year, group gross profit will increase and group beginning retained earnings will reduce.
The financial statements of Jewel Ltd and its subsidiary Opal Ltd are shown below:Additional information(a) Jewel Ltd acquired the interest in Opal Ltd on 1 January 20x0 when the shareholders’
Prism Co acquired 80% of the stock of Sapphire Co for $300,000 on 1 January 20x7. At acquisition date, Sapphire reported retained earnings of $150,000. The excess of Prism Co’s acquisition cost
Parent Co purchased an equipment on 1 January 20x1 for $200,000. The estimated useful life at that date was ten years with a nil residual value. On 1 July 20x5, Parent Co sold the equipment to
The financial statements of P Co and Y Co for the year ended 31 December 20x5 are shown below. P Co acquired a 90% interest in Y Co on 1 January 20x3.Additional information:(a) Undervalued inventory

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