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financial accounting

Questions and Answers of Financial Accounting

If the assets of a subsidiary are reported at below fair value in the balance sheet at the date of acquisition, and a fair value adjustment is not undertaken as part of the consolidation process,
Consider the corporate structure represented in Figure 28.8.Figure 28.8 Corporate structure referred to in Review Question 12REQUIREDDetermine A Ltd’s interest (direct and indirect) and the
Can a parent entity have a subsidiary in which it has no direct ownership interest?
If the indirect ownership interests of a parent entity in a subsidiary are being discussed, what is this discussion referring to?
The following financial statements of Mark Ltd and its subsidiary Richards Ltd have been extracted from their financial records at 30 June 2023.Other informationMark Ltd had acquired its 80 per cent
On 1 July 2021 Anderson Ltd acquires 70 per cent of the equity capital of Thruster Ltd at a cost of $4 million.At the date of acquisition all assets of Thruster Ltd are fairly stated, and the total
Layne Ltd acquired 90 per cent of the share capital of Beachly Ltd on 1 July 2022 for a cost of $500 000. As at the date of acquisition all assets of Beachly Ltd were fairly valued, other than land
Kelly Ltd acquired 70 per cent of the share capital of Slater Ltd on 1 July 2022 for a cost of $300 000. At the date of acquisition all assets were fairly valued, and the balance of share capital and
Backbeach Ltd acquired a 70 per cent interest in another entity, Frontbeach Ltd, in 2019 for a cost of $5 million. There was no goodwill or bargain gain on purchase. The consolidation worksheet for
Assume that Company A acquires 70 per cent of Company B for a cash price of $10 million when the share capital and reserves of Company B are:a. What amount will be shown in the consolidated statement
In working out the non-controlling interest in current period profits we start with the reported profit of the subsidiary and then make a number of adjustments. What sorts of things do we need to
Why does AASB 3 provide a choice in how to measure non-controlling interests?
There are two approaches to measuring non-controlling interests, each of which will lead to a different amount being attributed to reported goodwill. Will the choice of either method of accounting
If less than 100 per cent of a subsidiary is owned by the parent entity, will less than 100 percent of the assets and liabilities of the subsidiary be included within the consolidated financial
If there is a purchase transaction between the parent entity and a 60 per cent-owned subsidiary that generates a payable in the accounts of the parent entity, and a receivable in the accounts of the
If there is a purchase transaction between the parent entity and a 60 per cent-owned subsidiary that generates a payable in the accounts of the parent entity, and a receivable in the accounts of the
Is the non-controlling interest considered to be debt, or equity, within the consolidated financial statements?
Where only a proportion of a subsidiary’s shares are owned by a parent entity, what proportion of the intragroup transactions between the parent entity and the subsidiary will need to be eliminated
What is a non-controlling interest, and how should it be disclosed within the consolidated financial statements?
The following financial statements of Andy Ltd and its subsidiary Irons Ltd have extracted from their financial records at 30 June 2023.Other informationAndy Ltd acquired its 100 per cent interest in
Jacko Ltd owns 100 per cent of the shares of Jackson Ltd, acquired on 1 July 2022 for $3.5 million when the shareholders’ funds of Jackson Ltd were:All assets of Jackson Ltd are fairly stated at
Nat Ltd acquires all of the issued capital of Midget Ltd for a cash payment of $1.5 ] million on 30 June 2023. The statements of financial position of both immediately following the purchase
Bigger Company owns all of the issued capital of Smaller Company. The financial statements of Bigger Company and Smaller Company at 30 June 2023 are as follows:Bigger Company acquired its 100 per
Bernie Boffin Ltd owns 100 per cent of Computer Ltd. On 1 July 2021 Bernie Boffin Ltd sells an item of plant to Computer Ltd for $3.6 million. This plant cost Bernie Boffin Ltd $4.5 million and had
Big Company owns all of the issued capital of Small Company. Big Company acquires its 100 percent interest in Small Company on 1 July 2022 for a cost of $2000. All assets are fairly stated at
A Ltd owns 100 per cent of B Ltd, which in turn owns 100 per cent of C Ltd. During the financial year, A Ltd sells inventory to B Ltd at a sale price of $150 000. The inventory cost A Ltd $100 000 to
If one entity sells inventory to another entity which is 80 per cent owned, what percentage of the sales revenue needs to be eliminated in the consolidation process?
What effect, if any, would the payment of dividends by a controlled entity, out of its pre-acquisition earnings, have on the amount of goodwill that would be recognised on consolidation?
How would dividends that have been paid out of pre-acquisition earnings of a subsidiary be treated in the accounts of the parent entity?
In the consolidated financial statements, which dividends are to be shown as paid declared, payable and receivable?
If there has been an intragroup payment of management fees within a reporting period, which accounts need to be debited and credited as part of the consolidation process?
If goodwill has been acquired in a previous period, what consolidation journal entries would be used in the current period to account for prior period, and current period, impairments of goodwill?
If there has been an intragroup sale of inventory within a reporting period, and not all of the related inventory has been sold to external parties, which accounts need to be debited and credited as
If one organisation within a group sells a non-current asset to another member of the group at a profit, will this lead to a deferred tax asset on consolidation? Why or why not?
If there has been an intragroup sale of inventory within a reporting period, and all of the related inventory has been sold to external parties, which accounts need to be debited and credited as part
What is an intragroup transaction and why do we need to know about them?
What is an intragroup transaction, and do the effects of intragroup transactions have to be eliminated in full?
Whopper Ltd acquires 100 per cent of the shares of Weenie Ltd on 1 July 2022 for a consideration of $1.25 million. The share capital and reserves of Weenie Ltd at the date of acquisition
This chapter refers to the work of Sullivan (1985). He investigated how organisations such as CSR Ltd used interposed unit trusts so that controlled entities were omitted from the consolidation
According to AASB 3, how should a bargain gain on purchase arising on consolidation be treated?
The management of one of your clients has told you that they intend not to consolidate the financial statements of one of their subsidiaries because it is involved in mining, whereas all of the other
You are given the following information in respect of XYZ Ltd for the year ending 30 June 2022.Earnings for the year ending 30 June 2022 $70 000 000Fully paid ordinary shares at 1 July 2021 75 000
What is a share-based payment transaction?
What disclosures are required in relation to the reserves of a company?
Are preference shares debt or equity?
What are ‘potential voting rights’ and what part do they play in determining whether an entity is under the control of another entity?
If a subsidiary sells inventory to the parent entity and some of the inventory is still on hand at year end, what adjustments are necessary at year end? Further, will adjustments be required to
When does an intragroup inventory transaction require us to perform a consolidation adjustment to tax expense?
Following consolidation, should dividends paid to the parent entity by its subsidiaries be shown in the economic entity’s financial statements?
Largey Ltd acquires 100 per cent of the shares of Smalley Ltd on 1 July 2022 for a consideration of $650000. The share capital and reserves of Smalley Ltd at the date of acquisition are:The directors
Michael Ltd acquires all of the issued capital of Petersen Ltd for a cash payment of $600 000 on 30 June 2023. The statements of financial position of both entities immediately following the purchase
When we are preparing consolidated financial statements, why don’t we make any of the consolidation adjustments in the ledger accounts of the subsidiaries or the parent entity?
What forms of entities may be consolidated (for example, partnerships, trusts, companies)? Has this requirement changed across the years?
What is the rationale for including the post-acquisition movements in retained earnings and other reserves of a subsidiary in the consolidated financial statements?
Would it be possible for an organisation to be required to consolidate another entity in which it has no equity interest? Explain why
If there are non-controlling interests, will all of the goodwill of the subsidiary be recognised in the consolidated statements of financial position?
Rip Ltd controls Curl Ltd, but is acting as an agent for Quik Ltd in relation to its dealings with Curl Ltd, would Rip Ltd be required to include Curl Ltd’s accounts within its consolidated
What is the primary criterion for determining whether or not to consolidate an entity?
On consolidation we need to eliminate the investments in controlled entities. Against which accounts do we eliminate these investments?
What is a non-controlling interest, and what disclosures about the non-controlling interests in the group shall be made pursuant to AASB 12?
Do we consolidate an entity over which we have joint control?
If a parent entity acquires a controlling interest in a subsidiary, and the subsidiary’s assets are not measured at fair value, there is a requirement to make an adjusting entry to record the
Can a subsidiary be controlled by two different entities?
Briefly explain the differences between the entity, proprietary and parent-entity consolidation concepts and identify which concept is to be applied in Australia.
Collapse Ltd has severe financial problems and has agreed with its creditors that its activities will be placed in the hands of XYZ Chartered Accountants, which has been appointed to govern the
On consolidation, how is the goodwill on acquisition or the bargain gain on purchase determined?
Will the retained earnings and equity reserves of a subsidiary be included within the consolidated financial statements?
There is one asset that appears in the consolidated statement of financial position, but probably does not appear in the parent entity’s or subsidiaries’ separate accounts, and there is also one
If some intangible assets were not recognised by a subsidiary because they were internally developed, can those same intangible assets be recognised in the consolidated financial statements?
The consolidated statement of financial position will show the total assets controlled by the economic entity (group) and the total liabilities owed to parties outside the economic entity. As such,
What is ‘goodwill’, and how is it determined?
What does ‘control’ mean in the context of consolidation accounting, and of what relevance is ‘control’ to the decision to include, or exclude, the financial accounts of an entity within the
In a newspaper article entitled ‘Pay for big four bosses in the shade of an even bigger one’ that appeared in The Sydney Morning Herald on 4 May 2019 it was reported that the Chief Executive
What is a ‘parent entity’, and what is a ‘subsidiary’?
We are comparing two companies that are listed on the ASX and which have the following details:Bells LtdProfit after tax of $50 million for the last financial period.Pays $4 million in preference
The statements of comprehensive income of PK Ltd, and PK Group (comprising PK Ltd and its subsidiaries), for the financial year ending 30 June 2023 are as follows:Statements of comprehensive income
XYZ Ltd is a public company listed on the Australian Securities Exchange. You are provided with the following information about XYZ:These shares were issued on 1 January 2023 and are payable over the
Review the key management personnel disclosures made by BHP in its most recent annual report (you will need to go to the BHP website) and identify which transactions would cause you concern. Explain
For accounting purposes, what is a ‘related party’, and what is a ‘related party transaction’?
C Ltd is an Australian listed company.Ten million options were issued by the company on 15 September 2022. These exercisable by the holder at $2.50 per option on or before 22 November 2025.One
Outline the requirements in respect of the disclosure of both basic and fully diluted EPS in the financial statements of listed public companies. Discuss the advantages and disadvantages of such
P Ltd is an Australian listed company. Its results for the financial year ending 30 June 2023 have exceeded expectations profit before tax is $5.597 million and income tax expense is $1.847 million.
Z Ltd has on issue 2 million ordinary shares and 1 million convertible preference shares of $0.50 each. The holders of the preference shares have the right to convert into ordinary shares at the rate
You are given the following information for Y Ltd for the year ending 30 June 2023.The company has 2.4 million fully paid ordinary shares on issue at July 2022 and 2 million, 5 percent, $1.00
X Ltd has earnings for the year ending 30 June 2023 of $410 million. Outstanding ordinary shares as at 1July 2022 were 100 million fully paid ordinary shares.During the year the company issued 15
For the year ending 30 June 2023, A-Bay Ltd reports net profit after tax of $1 million. At the beginning of the year, A-Bay Ltd had 600 000 fully paid ordinary shares on issue. It also had 100 000
For the year ending 30 June 2024, Granite Ltd reports the following:1. Net profit after tax of $1.2 million.2. Granite Ltd commenced the year with 400 000 fully paid ordinary shares. During the year
All things being equal, will a higher EPS lead to a higher or lower dividend payout ratio?
If an entity has issued mandatorily convertible instruments, can they be ignored when we are calculating basic earnings per share?
If there has been a bonus issue in a particular year, do we need to adjust the previous period’s EPS for comparative purposes? If so, how do we adjust the previous period’s EPS?
Where would the information about earnings per share be disclosed?
How do we determine:a. Basic earnings per share?b. Diluted earnings per share?
If one organisation has a higher earnings per share than another organisation, does this indicate that it is being better managed? Further, is it actually appropriate to compare the EPS of one
What would a loIw price earnings ratio indicate?
What is the price earnings ratio, and how does it relate to earnings per share?
If a company issues bonus shares to shareholders, what will be the subsequent impact on earnings per share?
In a newspaper article entitled ‘Domino’s set to buy back its own slices’ (Courier Mail, 22 December 2018, p. 55) it was reported that the pizza company Domino’s would buy back some shares at
When should both basic and diluted EPS be disclosed?
If there were a ‘share split’ in the current period, would any adjustment be necessary for the prior period comparative EPS? If so, how would the adjustment be calculated?
How are ‘earnings’ and ‘number of shares’ determined for the purposes of calculating earnings per share?

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