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advanced financial accounting

Questions and Answers of Advanced Financial Accounting

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
On 1 January 20x4, P Co purchased a 90% interest in Topaz Co, a company that specializes in developing patented engineering processes. To acquire the controlling interest in Topaz Co, P Co
P Co acquired a controlling interest of 90% in X Co. The financial statements of P Co and X Co and other relevant details are shown below:Additional information:(a) The fixed assets of X Co as at the
P Co acquired a controlling interest in Y Co on 1 January 20x4 as follows:Additional information(a) During 20x5, Y Co expensed off impairment loss so that the troubled receivables at acquisition date
P Co acquired interests in Silver Co. The current financial statements are shown below. All figures are in dollars, unless as otherwise indicated.Additional information1. The under-valued inventory
P Co acquired interests in X Co. The current financial statements are shown below. All figures are in dollars, unless as otherwise indicated.Additional information1. The remaining useful life of the
P Co acquired interests in Silver Co. The current financial statements are shown below. All figures are in dollars, unless as otherwise indicated.Additional information1. The under-valued inventory
P Co acquired a controlling interest in Y Co on 1 January 20x4. The financial statements of P Co and Y Co and other relevant details are shown below. All figures are in dollars, unless as otherwise
Refer to the information in P5.3.Required1. If other evidence suggests that Prism had only significant influence and not control over Sapphire, prepare the necessary equity accounting entries for the
On 1 January 20x2, I-Co entered into a joint-venture agreement to incorporate a new company called A-Co. I-Co’s initial investment in A-Co was $10,000,000, which was 30% of the initial start-up
The financial statements of A Co are shown below. P Co acquired a 30% interest in A Co on 1 January 20x3.Additional information(a) Unrecognized intangible asset of A Co was partially impaired in 20x4
An acquirer is called a “parent” when it acquires the net assets rather than the equity of another entity, called the “subsidiary.” Is this true or false?
Company A is given the contractual right by billionaire Jill Gates to govern, on her behalf, the daily affairs and long-term policies of Company X, a company whose shares Ms Gates owns. Is Company X
Company A, which owns 40% of Company Y, has the power given by contractual agreement with other shareholders of Company Y to appoint or remove the majority of the members of the board of directors of
Company A owns 40 million ordinary shares issued by Company B. The total number of ordinary shares issued by Company B is 100 million. At the same time, Company A also holds $10,000,000 of
Download the following articles from your library’s electronic database (e.g. ProQuest or ABI-Inform) and analyze them:(a) Beckman, J.K., 1995. “The Economic Unit Approach to Consolidated
A fund manager manages an investment fund based on narrowly defined parameters in local regulations. The manager has 5% interests in fund, and is paid 1% of net asset value as remuneration. The
The manager has wide decision-making discretion. The investors can remove the manager by a simple majority vote, but only for breach of contract. Does the fund manager have control over the fund? A
The manager has wide decision-making discretion. The investors appoint a board of directors for the fund. The board decides annually if the manager is to be appointed. The services of the manager are
An investee is a vehicle that purchases fixed rate securities, funded by a mix of equity and debt instruments. The equity provides first loss protection to the debt investors. An asset manager has
Provide two examples where IFRS 10 requires an investor to consolidate its entity while IAS 27 does not require consolidation.
What are the key changes from IAS 27 to IFRS 10 in determining if consolidation of investee is required? What are the reasons that the Board makes these changes?
How are risks and rewards considered in determining control under IFRS 10?
Explain the nature of returns in determining control under IFRS 10.
P acquired a 60% interest in S when the share capital and retained earnings of S were $100,000 and $150,000, respectively. At the date of acquisition, the book values of the assets of S were
Goodwill under IFRS 3 Business Combinations is the difference between the aggregate of the fair value of consideration transferred, the amount of non-controlling interests at acquisition date, and
You have recently graduated and joined the ranks of an auditing firm. Soon after joining the firm, your overworked audit manager calls you to his office. “This client of ours seems to have
The International Airlines Group (IAG) was formed during 2011 and is the parent company of Aer Lingus, British Airways, Iberia, and Vuelling. It is a Spanish registered company with shares traded on
IFRS 3, unlike US GAAP, allows non-controlling interests at acquisition date to be recognized at either full fair value or a proportionate share of the fair value of identifiable net assets of the
A business combination is when an acquirer obtains control of one or more businesses. In reality, there are different ways to achieve this objective.Required:1. Describe four forms of business
Scenario AA Co acquired a controlling interest in B Co and entered into the following transactions on acquisition date, 1 July 20x3.Required:Prepare the journal entries that A Co would record to
On 1 January 20x6, P purchased 80% of the equity of S from S’s existing owners. The following transactions arose on or just prior to the acquisition date.Additional information:(a) The existing
P Co is keen to acquire the business of S Co on 1 January 20x1 and it can do so in one of two ways. P Co will issue shares with fair value of $700,000 as settlement for the acquisition under each
On 1 January 20x1, P Co entered into an agreement with Tuscany Co to acquire the net assets and business of Tuscany Co. The following transactions arose on 1 July 20x1 to execute the agreement with
On 1 July 20x3, Small Ltd issued 10 million new shares to owners of Sumo Pte Ltd in exchange for all of Sumo Pte Ltd’s shares. The share exchange is the result of a reverse acquisition of Small Ltd
Sumo Pte Ltd initiated a share exchange agreement with Trim Ltd, a publicly listed company, whereby Trim Ltd would issue 16 million new ordinary shares in exchange for 100% ownership of Sumo Pte Ltd.
During April 20x3, Small Ltd, a publicly listed company, agreed to issue 8.5 million new ordinary shares to the shareholders of Big Pte Ltd in exchange for 100% ownership of Big Pte Ltd. On 1 July
The book value of shares issued in exchange for control rights should be used as the basis of measuring the initial cost. True/False
IFRS 3 Business Combinations allows a choice on the basis of measurement for non-controlling interests. For each acquisition, the acquirer may choose to measure non-controlling interests on
P Co issued 2,000,000 of its own shares (fair value of $10 per share) and paid $6,000,000 in cash to the existing owners of S Co to acquire 90% of the shares of S Co on 1 July 20x1. Fair value of
Is there a parent-subsidiary relationship in each of the situations below? If the situation is ambiguous, identify the factors that will determine if a parent-subsidiary relationship exists.(a)
Phi acquired an 80% ownership interest in Alpha on 1 January 20x1 for $1,000,000. At the date of acquisition, Alpha showed the following balances under shareholders’ equity:At the date of
On 2 October 2002, the Securities and Exchange Commission (SEC) filed a civil enforcement action against Andrew S. Fastow, the former Chief Financial Officer of Enron Corp., for alleged fraud. The
In its Annual Report for the year ended 31 December 2013, IHH Healthcare Berhad, a Malaysian listed company disclosed that it had adopted Malaysian Financial Reporting Standard (MFRS) 10,
An entity P has entered into the following transactions for the financial year. Entity P is wholly owned by entity Z. Advise the accountant of entity P which are the related party transactions that
Management Discussion and Analysis Check out an online annual report of a selected financial institution and review the Management Discussion and Analysis (MD&A) section or Operating Review.1.
Value at Risk A firm uses historical simulation to calculate its Value at Risk (VaR), using daily horizons and a 99% confidence level. In its annual report, it discloses the limitations of the VaR
Article-based Discussion Read the article “Value at Risk” by T.J. Linsmeier and N.D. Pearson, Financial Analysts Journal, March/April 2000.Required:1. Compare the advantages and limitations of
Article-based Discussion Read the article “Z Scores — A Guide to Failure Prediction,” by G.J. Eidleman, The CPA Journal, February 1995.Required:1. What judgments are involved in the Z-score?2.
Related party disclosures The following diagram shows the corporate structure of Alpha Corporation and three other companies.Alpha exercises control over both Beta’s and Delta’s policy decisions
An accountant of entity K is tasked with classifications of business segments for the purpose of meeting IFRS 8 disclosure requirements. The accountant considers classifying the activities of entity
The following table summarizes the financial assets and financial liabilities of PL Banking Corporation in a tabular format.Required:1. Discuss the nature of the interest rate risks facing PL Banking
The following table shows the investments of SP Ltd, which are classified into three sub-categories.Assumptions:(a) Returns are independently and normally distributed.(b) Each category is treated as
Public Corporation, a listed company, has five segments: logistics, warehousing, engineering, manufacturing, and consultancy. The following information for the year ended 31 December 20x9 is
Operating Segments Electronic Grocers Ltd (EGL) sells groceries to its customers through its online platform. It also provides advertising services for some of the products that it sells. Supporting
Using the voting rights criterion, identify the parent(s), subsidiaries and associates, if any. Arrows indicate share ownership of the top company in the lower company. B 100% 60% A D 60% 40%
Identify the parent(s), subsidiaries and associates, if any, in the following structure: B 50% 60% A C D 60% 40%
A “parent” and a “subsidiary” continue to exist as separate legal entities even though they are economically one reporting entity. Is this true or false?
How is the amount reported as goodwill determined under the acquisition method?
Which of the following actions is likely to result in recording goodwill on Poker Company’s books?a. Poker acquires Spade’s Corporation in a business combination recorded as a merger.b. Poker
On January 1, 20X1, Portland Corporation issued 10,000 shares of common stock in exchange for all of Stockton Corporation’s outstanding stock. Condensed balance sheets of Portland and Stockton
On April 1, 20X2, Pack Company paid $800,000 for all of Sack Corporation’s issued and outstanding common stock. Sack’s recorded assets and liabilities on April 1, 20X2, were as follows:On April
Pickle Corporation issued nonvoting preferred stock with a fair market value of $4,000,000 in exchange for all the outstanding common stock of Sickle Corporation. On the date of the exchange, Sickle
Popper Company established a subsidiary and transferred equipment with a fair value of $72,000 to the subsidiary. Popper had purchased the equipment with a 10-year expected life 4 years earlier for
Pead Corporation established a new subsidiary and transferred to it assets with a cost of $90,000 and a book value of $75,000. The assets had a fair value of $100,000 at the time of transfer. The
Salt Company, a newly established subsidiary of Pepper Corporation, received assets with an original cost of $260,000, a fair value of $200,000, and a book value of $140,000 from the parent in
Pout Company reports assets with a carrying value of $420,000 (including goodwill with a carrying value of $35,000) assigned to an identifiable reporting unit purchased at the end of the prior year.
Pill Company has a reporting unit and the fair value of its net identifiable assets of $500,000. The carrying value of the reporting unit’s net assets on Pill’s books is $575,000, which includes
Pale Company was established on January 1, 20X1. Along with other assets, it immediately purchased land for $80,000, a building for $240,000, and equipment for $90,000. On January 1, 20X5, Pale
Pester Company transferred the following assets to a newly created subsidiary, Shumby Corporation, in exchange for 40,000 shares of its $3 par value stock:Requireda. Give the journal entry in which
Pab Corporation decided to establish Sollon Company as a wholly owned subsidiary by transferring some of its existing assets and liabilities to the new entity. In exchange, Sollon issued Pab 30,000
Pagle Corporation established a subsidiary to enter into a new line of business considered to be substantially more risky than Pagle’s current business. Pagle transferred the following assets and
Incomplete Data on Creation of Subsidiary Plumb Company created Stew Company as a wholly owned subsidiary by transferring assets and accounts payable to Stew in exchange for its common stock. Stew

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