Questions and Answers of Applying IFRS Standards

2. Verify the foreign currency translation adjustment.
1. If the functional currency for Baseball Ltd is the US dollar, prepare the fi nancial statements of Baseball Ltd at 30 June 2016 in the presentation currency of the Australian dollar.
4. Assume on 1 January 2016, Baseball Ltd sold the patent to Cricket Ltd for US$100 000 and that Cricket Ltd depreciates this asset evenly over a 20-year period. Prepare the consolidation worksheet
3. Prepare the consolidation worksheet entries to consolidate the translated fi nancial statements of Baseball Ltd with its parent entity at 30 June 2016.
2. Verify the foreign currency translation adjustment.
1. If the functional currency for Baseball Ltd is the Australian dollar, prepare the fi nancial statements of Baseball Ltd at 30 June 2016 in the functional currency.
12. Why are gains/losses on translation taken to a foreign currency translation reserve rather than to profi t or loss for the period?
11. What causes a foreign currency translation reserve to arise?
10. How are statement of fi nancial position items translated from functional currency to presentation currency?
9. How are statement of profi t or loss and other comprehensive income items translated from functional currency to presentation currency?
8. What is meant by ‘presentation currency’?
7. How are foreign exchange gains and losses calculated when translating from local currency to functional currency?
6. How are statement of fi nancial position items translated from the local currency into the functional currency?
5. How are statement of profi t or loss and other comprehensive income items translated from the local currency into the functional currency?
4. What guidelines are used to determine the functional currency of an entity?
3. What is the rationale behind the choice of an exchange rate as an entity’s functional currency?
2. What is meant by ‘functional currency’?
1. What is the purpose of translating fi nancial statements from one currency to another?
11 prepare the disclosures required by IAS 21.
10 explain what constitutes the net investment in a foreign operation
9 prepare consolidated fi nancial statements including foreign subsidiaries when the functional currency is that of the parent entity
8 prepare consolidated fi nancial statements including foreign subsidiaries when the local currency is the functional currency
7 translate fi nancial statements into the presentation currency
6 account for changes in the functional currency
5 translate a set of fi nancial statements from local currency into the functional currency
4 apply the indicators in choosing a functional currency
3 discuss the rationale underlying the choice of a functional currency
2 explain the difference between functional and presentation currencies
1 identify the reason for translation of fi nancial statements and the applicable accounting standard
7. What is meant by ‘realisation of profi t’?
6. Explain whether an NCI adjustment needs to be made for all intragroup transactions.
5. Explain how the adjustment for intragroup transactions affects the calculation of the NCI share of equity.
4. Why is it necessary to change the format of the worksheet where an NCI exists in the group?
3. How does the existence of an NCI affect the elimination of investment and recognition of goodwill entries?
2. How does the existence of an NCI affect the business combination valuation entries?
1. What is meant by the term ‘non-controlling interest’ (NCI)?
5 explain how the NCI is affected by the existence of a gain on bargain purchase.
4 explain how the calculation of the NCI is affected by the existence of intragroup transactions
3 explain how to calculate the NCI share of equity
2 explain the effects of the NCI on the consolidation process
1 discuss the nature of the non-controlling interest (NCI)
Exercise 22.9 ★ ★ ★ CONSOLIDATION WORKSHEET On 1 July 2014, Monique Ltd acquired all the shares of Madeleine Ltd for $137 200. At acquisition date, the equity of Madeleine Ltd consisted of:
Exercise 22.8 ★ ★ ★ CONSOLIDATION WORKSHEET, CONSOLIDATED FINANCIAL STATEMENTS On 31 December 2011, Lara Ltd acquired all the issued shares of Jade Ltd. On this date, the share capital of Jade
Exercise 22.7 ★ ★ ★ CONSOLIDATED WORKSHEET, CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME On 1 April 2015, Abby Ltd acquired all the issued ordinary shares (cum div.)
Exercise 22.6 ★ ★ CONSOLIDATION WORKSHEET, CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Financial information for Jasmine Ltd and Poppy Ltd for the year ended 30 June
Exercise 22.6 ★ ★ CONSOLIDATION WORKSHEET, CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Financial information for Jasmine Ltd and Poppy Ltd for the year ended 30 June
Exercise 22.5 ★ ★ CONSOLIDATION WORKSHEET, IMPAIRMENT OF GOODWILL Financial information for Amy Ltd and its 100% owned subsidiary, Zara Ltd, for the year ended 31 December 2016 is provided below:
Exercise 22.4 ★ ★ CONSOLIDATION WORKSHEET, CONSOLIDATED FINANCIAL STATEMENTS On 1 July 2015, Sienna Ltd acquired all the shares of Amber Ltd for $160 000. The fi nancial statements of the two
Exercise 22.3 ★ ★ INTRAGROUP TRANSACTIONS, EXPLANATION OF RATIONALE Alexis Ltd owns 100% of the shares of Ruby Ltd. During the 2015–16 period, Alexis Ltd sold inventory for $10 000 which had
Exercise 22.2 ★ ★ ELIMINATION OF INVESTMENT IN SUBSIDIARY AND INTRAGROUP TRANSACTIONS, NO FAIR VALUE — CARRYING AMOUNT DIFFERENCES AT ACQUISITION DATE On 1 January 2013, Molly Ltd acquired all
Exercise 22.1 ★ CONSOLIDATION ADJUSTMENTS Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd, for $15 000. These items previously cost Jessica Ltd $12
6. What is meant by ‘realisation of profi ts’?
4 prepare worksheet entries for intragroup dividends 5 prepare worksheet entries for intragroup borrowings.
3 prepare worksheet entries for intragroup services such as management fees
2 prepare worksheet entries for intragroup transactions involving profi ts and losses in beginning and ending inventory
1 explain the need for making adjustments for intragroup transactions
Exercise 21.5 ★ ★ BARGAIN PURCHASE The accountant for Carina Ltd, Ms Finn, has sought your advice on an accounting issue that has been puzzling her. When preparing the acquisition analysis
Exercise 21.4 ★ BUSINESS COMBINATION VALUATION AND PRE-ACQUISITION ENTRIES On 1 July 2013, Pyxis Ltd acquired all the share capital of Gemini Ltd for £218 500. At this date, Gemini Ltd’s equity
Exercise 21.3 ★ ACQUISITION ANALYSIS, PARENT HOLDS PREVIOUSLY ACQUIRED SHARES IN SUBSIDIARY, WORKSHEET ENTRIES AT ACQUISITION DATE At 1 July 2014, Pavo Ltd acquired 60% of the shares of Octans Ltd
Exercise 21.2 ★ CONSOLIDATION WORKSHEET ENTRIES 1 YEAR AFTER ACQUISITION DATE At 1 July 2013, Pisces Ltd acquired all the shares of Ursa Ltd for £283 000. At this date the equity of Ursa Ltd
Exercise 21.1 ★ ACCOUNTING FOR ASSETS AND LIABILITIES Mensa Ltd has acquired all the shares of Cancer Ltd. The accountant for Mensa Ltd, having studied the requirements of IFRS 3 Business
4. If the subsidiary has recorded goodwill in its records at acquisition date, how does this affect the preparation of the pre-acquisition entries?
6 prepare the worksheet entries where the subsidiary revalues its assets at acquisition date 7 prepare the disclosures required by IFRS 3 and IFRS 12.
5 prepare the worksheet entries in periods subsequent to the acquisition date, adjusting for movements in assets and liabilities since acquisition date and dividends from pre-acquisition equity
4 prepare the worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries
3 prepare an acquisition analysis for the parent’s acquisition in a subsidiary
2 explain how a consolidation worksheet is used
1 understand the nature of the group covered in this chapter, and the initial adjustments required in the consolidation worksheet
Exercise 20.6 ★ ★ LESS THAN MAJORITY OWNERSHIP On 1 March 2015, Pink Ltd acquired 40% of the voting shares of Scarlet Ltd. Under the company’s constitution, each share is entitled to one vote.
Exercise 20.5 ★ ★ DETERMINING SUBSIDIARY STATUS Required In the following independent situations, determine whether a parent–subsidiary relationship exists, and which entity, if any, is a
Exercise 20.4 ★ ★ SUBSIDIARY STATUS Pumpkin Ltd owns 40% of the shares of Soup Ltd, and holds the only substantial block of shares in that entity; no other party owns more than 3% of the shares.
Exercise 20.3 ★ ★ CONTROL Pluto Ltd has acquired, during the current year, the following investments: Sun Ltd Saturn Ltd €120 000 (40% of issued capital) €117 000 (35% of issued capital)
Exercise 20.2 ★ OPTIONS Palau Ltd and India Ltd own 80% and 20% respectively of the ordinary shares that carry voting rights at a general meeting of shareholders of Cook Islands Ltd. Palau Ltd
Exercise 20.1 ★ CONVERTIBLE DEBENTURES Pea Ltd establishes Soup Ltd for the sole purpose of developing a new product to be manufactured and marketed by Pea Ltd. Pea Ltd engages Mr Smith to lead the
4. Are only those entities in which another entity owns more than 50% of the issued shares classifi ed as subsidiaries?
2. What is meant by the term ‘control’?
1. What is a subsidiary?
5 explain the differences in disclosure requirements between single entities and consolidated entities.
4 understand the relationship between a parent and an acquirer in a business combination
3 discuss which entities should prepare consolidated fi nancial statements
2 discuss the meaning and application of the criterion of control
1 explain the meaning of consolidated fi nancial statements
Exercise 19.9 ★ ★ EFFECT OF SHARE OPTIONS ON DILUTED EARNINGS PER SHARE Xenia Ltd determines its profi t attributable to ordinary shareholders for the reporting period ended 30 June 2014 as $96
Exercise 19.8 ★ ★ RIGHTS ADJUSTMENT FACTOR AND ADJUSTED BASIC EARNINGS PER SHARE Assume that in exercise 19.16 Kenny Ltd announced the rights issue at the beginning of its reporting period (1
Exercise 19.7 ★ ★ THEORETICAL EX-RIGHTS VALUE Kenny Ltd has 30 000 ordinary shares on issue. The company announced a one-for-three rights issue with an exercise price of $4 for each right. The
Exercise 19.6 ★ ★ BONUS ISSUE OF SHARES On 1 January 2013, Regis Ltd has 200 000 ordinary shares outstanding. On 1 March 2013, the company announces a bonus issue of two shares for every share
Exercise 19.5 ★ COMPONENTS OF BASIC EARNINGS PER SHARE Which of the following is a component of earnings used in the calculation of basic earnings per share? Give reasons for your answer. (a) Profi
Exercise 19.4 ★ ★ EFFECT OF RELATED PARTY DISCLOSURES The following is an extract illustrating the potential impact of disclosing information about the remuneration arrangements of key
Exercise 19.3 ★ ★ DETERMINING WHETHER PARTIES ARE RELATED Jacques holds 100% of the shares in Cannes Ltd and he is also a director of Revoir Ltd. All of the shares in Revoir Ltd are held by
Exercise 19.2 ★ RECOGNITION PRINCIPLES Jay Wendt is a newly appointed director of Armstrong Ltd, a listed company that organises major sporting events. Jay has provided consultancy services to
Exercise 19.1 ★ SCOPE OF IAS 24 Which of the following is the related party of an entity within the scope of IAS 24? Give reasons for your answer. (a) A person who has the authority to plan, direct
5. Explain the effect of potential ordinary shares on the calculation of diluted earnings per share. 6. Why are retrospective adjustments made to earnings per share ratios?
1. What is the earnings per share ratio used for?
5. Explain how an entity determines whether a family member is a related party.
3. Explain why a parent company and its subsidiary entities are regarded as related parties.
2. Explain why key management personnel are regarded as related parties.
1. Why do standard setters formulate rules for the disclosure of related party relationships?
7 explain the objective of IAS 33 8 discuss the application and scope of IAS 33 9 discuss the components of basic earnings per share and examine how it is measured 10 explain the concept of diluted
6 explain why a government-related entity has a partial exemption from related party disclosures
5 describe and apply the disclosures required by IAS 24

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