Hkpolyu Afa Quiz Answer Key

___ 1.

A parent company sells goods to its 80% owned subsidiary during the financial year, some of which remains in inventory at the year end.

What is the adjustment required in the consolidated financial statements to eliminate any unrealized profit in inventory? 

A)

Dr Sales, Cr Cost of sales, Cr Inventory

B)

Dr Group retained earnings, Dr Non-controlling interest, Cr Inventory

C)

Dr Inventory, Cr Cost of sales.

D)

Dr Inventory, Cr Group retained earnings, Cr Non-controlling interest.

___ 2.

On 1 October 20X5, Anita Co purchased 75% of Binita Co’s equity shares when Binita Co’s retained earnings amounted to $90,000.

On 30 September 20X7, extracts from the statements of financial position of the two companies were:

                                Anita Co         Binita Co

$’000         $’000

Equity shares                  125                 100

Retained earnings                 300                 150

Total                                 425                 250

What is the total equity attributable to the owners of Anita Co that should appear in Anita Co’s consolidated statement of financial position as at 30 September 20X7?

Retained earnings = 300 + ((150 – 90) x 75%) = 345

Total equity = 125 + 345 = 470

1.  $125,000       B)  $470,000       C)  $345,000       D)  $537,500

___ 3.

When a gain on a bargain purchase (negative goodwill) arises, IFRS 3 Business Combinations requires an entity to first of all review the measurement of the assets, liabilities and consideration transferred in respect of the combination.

When the negative goodwill is confirmed, how is it then recognised?

1. It is credited directly to retained earnings
2. It is credited to profit or loss
3. It is debited to profit or loss
4. It is deducted from positive goodwill

_  __ 4.

How much is the goodwill if full goodwill method (i.e. non-controlling interest is measured at fair value) is used?

• Consideration transferred = $61m + FV of NCI $13m = $74,000,000
• FV of identifiable net assets = $19m + $30m + $4m x (1-16.5% tax) = $52.340,000
• Goodwill = $74,000,000 - $52,340,000 = $21,660,000

A)  $19,600,000    B)  $21,000,000    C)  $21,600,000    D)  $21,660,000

__  _ 5.

How much is the goodwill if non-controlling interests were measured as a proportion of fair value of XY's identifiable net assets?

• FV of identifiable net assets = $19m + $30m + $4m x (1-16.5% tax) = $52.340,000
• Consideration transferred = $61m + Amount of NCI ($52,340,000 x 20%)= $61m + $10,468,000 = $71,468,000

Goodwill = $71,468,000 - $52,340,000 = $19,128,000, or $61m - $52,340,000 x 80% = $19,128,000

A)  $17,080,000    B)  $19,600,000    C)  $19,128,000    D)  $19,080,000

___ 6.

A owns 60% of B and 28% of D.

B owns 51% of C.

C owns 33% of D.

Judging from the shareholdings, which of the following is INCORRECT?

A)

D is the subsidiary of A

C)

B is the subsidiary of A.

B)

C is the associate of A.

D)

D is the associate of C.

___ 7.

Parket Co acquired 60% of Suket Co on 1 January 20X7. The following extract has been taken from the individual statements of profit or loss for the year ended 31 March 20X7:

        Parket Co         Suket Co

        $’000         $’000

Cost of sales           710           480

Parket Co consistently made sales of $20,000 per month to Suket Co throughout the year. At the year end, Suket Co held $20,000 of this in inventory. Parket Co made a mark-up on cost of 25% on all sales to Suket Co.

What is Parket Co’s consolidated cost of sales for the year ended 31 March 20X7?

710,000 + (480,000 x 3/12) – (20,000 x 3) + (20,000 x 25/125) = $774,000

A)  $954,000    B)  $950,000    C)  $774,000    D)  $766,000

___ 8

Which of the following will be treated as a subsidiary of Poulgo Co as at 31 December 20X7?

1. The acquisition of 60% of Zakron Co’s equity share capital on 1 March 20X7. Zakron Co’s activities are significantly different from the rest of the Poulgo group of companies
2. The offer to acquire 70% of Unto Co’s equity share capital on 1 November 20X7. The negotiations were finally signed off during January 20X8
3. The acquisition of 45% of Speeth Co’s equity share capital on 31 December 20X7. Poulgo Co is able to appoint three of the ten members of Speeth Co’s board

A)  1 only         B)  2 and 3         C)  3 only         D)  1 and 2