Question 1 (Multiple Choice) - 10 marks Circle ONE (1) correct answer to each of the 10 multiple-choice questions below. This information relates to questions 1 and 2 A Limited acquired 100% of the shares of B Limited. The following represents information of inventory in the books of B Limited in respect of sales from A Limited during the year. Lot Original Cost Transfer Price NRV Impairment $ $ $ $ 1 70,000 100,000 80,000 20,000 2 50,000 60,000 30,000 30,000 1. The inventory value of Lot 1 that should be recorded in the consolidated financial statements/worksheet is (a) $ 60,000 (b) $ 70,000 (c) $ 80,000 (d) $100,000 2. The total value of the impairment expense (write down) that should be recorded in the consolidated financial statements/worksheet is (a) $ NIL (b) $ 20,000 (c) $ 30,000 (d) $ 50,000 If Parent Limited receives a dividend from its subsidiary which was approved and paid before AASB 127.38A came into effect (pre-2009), the correct account for the credit side of the entry recorded in the books of Parent Limited is 3. (a) Cash (b) Dividend Revenue (c) Retained Profits - dividend appropriation (d) Investment in subsidiary 4. If A Limited acquires a 80% interest in the share of B Limited who in turn acquires a 70% interest in the shares of C Limited, the indirect non controlling interest in C Limited is calculated to be (a) 0% (b) 14% (c) 30% (d) 56% 2 Question 1- continued (10 marks) 5. The fundamental concept adopted by AASB 127 'Separate Financial Statements' although not specifically stated, but inferred is (a) Acquisition method concept (b) The entity concept (c) Equity method concept (d) Economic entity concept 6. Which statement is INCORRECT with respect to the substitution elimination journal following a bonus share issue from pre-control profit (a) The goodwill (if applicable) remains the same as prior to bonus issue (b) The investment balance to be eliminated remains the same as prior to bonus issue (c) Individual equity balances of equity changes but the total equity to be eliminated remains the same as prior to the bonus issue (d) A consolidation reserve will arise as part of the substitution elimination journal 7. The subsidiary issued 100, $1,000 debentures to the public redeemable at par value in five (5) years. The parent subsequently purchases 60 of these debentures on the open market for $900 each. The journal entry to eliminate the intragroup debt in the year of purchase is (a) DR Debentures ( Liability ) $100,000 CR Debentures ( Asset) (b) DR Debentures ( Liability ) CR Debentures ( Asset) (c) DR Debentures ( Liability ) CR Debentures ( Asset) CR Gain - debenture retirement (d) DR Debentures ( Liability ) CR Debentures ( Asset) $100,000 $60,000 $60,000 $60,000 $54,000 $ 6,000 $54,000 $54,000 8. If a depreciable asset is sold in the current year within a group, for a profit. The correct statements in respect of the impact of the intragroup elimination journal is; I. Profit on consolidation will decrease in respect of gain on sale II. Profit on consolidation will increase in respect of gain on sale III. Depreciation expense on consolidation will decrease IV. Depreciation expense on consolidation will increase (a) I and III (b) I and IV (c) II and III (d) II and IV 3 Question 1- continued (10 marks) 9. Chose which item would not required a data adjustment on the consolidation worksheet (a) Internally generated intangible assets not recognised in the books of the subsidiary (b) Fair value adjustments for subsidiary's inventory at control date (c) Fair value adjustment for subsidiary's land where the subsidiary uses the revaluation model in it's books (d) Contingent liabilities recognised in the notes to the financial statements of the subsidiary 10. Jones Limited paid $600,000 to acquire 75% of David Limited. At control date the total equity of David Limited was $700,000 and all net assets were considered to be recorded at fair value. The amount of goodwill calculated under the full goodwill method is; $25,000 $50,000 $75,000 $100,000