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Questions and Answers of Financial Reporting

Undervalued assets, full and partial goodwill method  LO3, 4, 7 On 1 July 2019, Sugar Ltd acquired 90% of the shares of Glider Ltd for $435 240. At this date, the equity of Glider Ltd consisted of
Undervalued assets, full and partial goodwill method  LO4, 7 On 1 July 2019, Adeline Ltd acquired 75% of the issued shares of Christina Ltd for $360 000. At this date, the equity of Christina Ltd
Partial goodwill method, gain on bargain purchase  LO4, 7 Black Ltd acquired 90% of the issued shares of Swan Ltd for $107 600 on 1 July 2019. At this date, the equity of Swan Ltd consisted of:
Full and partial goodwill method  LO4 Swamp Ltd acquired 90% of the issued shares (cum div.) of Tortoise Ltd on 1 July 2018 for $237 000. At this date, the equity of Tortoise Ltd consisted of:
Full and partial goodwill method  LO4 On 1 July 2019, Rainbow Ltd acquired 80% of the issued shares of Lorikeet Ltd for $165 000. At this date, the equity of Lorikeet Ltd was as follows. Share
INTRAGROUP TRANSACTIONS Because Joshua Cement Works Ltd has a number of subsidiaries, the accountant, Evelyn Chen, is required to prepare a set of consolidated financial statements for the group. She
CALCULATION OF NCI In December 2019, William Ltd acquired 60% of the issued shares of Thomas Ltd. The accountant for William Ltd, Nikki Romanov, is concerned about the approach she should take in
REALISATION OF PROFITS The consolidated financial statements of Submarine Ltd are being prepared by the group accountant, Raz Putin. He is currently in dispute with the auditors over the need to
CHOICE OF FULL OR PARTIAL GOODWILL METHODS The following statement appears in Note 1 of the annual report of Christina Ltd. On an acquisition‐by‐acquisition basis, the Group recognises any
CASE STUDY CLASSIFICATION OF THE NCI Len Inn is the accountant for Jack Trucks Ltd. This entity has an 80% holding in the entity Tyres‐R‐Us Ltd. Len is concerned that the consolidated financial
Identify the disclosures required in relation to the NCI.
Explain how the gain on bargain purchase affects the measurement of the NCI.
Explain how the adjustment for intragroup transactions affects the calculation of the NCI share of equity.
Explain whether an NCI adjustment needs to be made for all intragroup transactions.
What are two events that could occur between the acquisition date and the beginning of the current period that could affect the calculation of the NCI share of retained earnings?
Explain how business combination valuation entries may affect the calculation of NCI in step2 and step 3.
How does the existence of the NCI affect the pre‐acquisition entries?
How does the existence of the NCI affect the business combination valuation entries?
If a step approach is used in the calculation of the NCI share of equity, what are the steps involved?
Describe the disadvantages of the two methods prescribed by AASB 3/IFRS3 to measure NCI for users and preparers of financial information.
What is the impact on goodwill of the two methods prescribed by AASB 3/IFRS 3 to measure NCI?
Why is it necessary to change the format of the worksheet where the NCI exists in the group?
Describe the format of the consolidation worksheet prepared in the presence of the NCI.
For what lines in the financial statements is it necessary to provide a break‐down into parent entity share and NCI share?
Explain whether the NCI is entitled to a share of subsidiary equity or some other amount.
Explain whether the NCI is better classified as debt or equity.
What is meant by the term ‘non‐controlling interest’ (NCI)?
Operators share output    LO4 After prospecting unsuccessfully for a number of years for gold, in November 2020 Greens Pool Ltd finally found an economically viable deposit. Realising that
Unincorporated joint operation managed by one of the operators    LO4 During 2018, discussions took place between Broken Bay Ltd, a company concerned with the design of specialised tools and
Operators share output    LO3, 4 On 1 July 2020, Toowoomba Ltd entered into a joint operation agreement with Miles Ltd to manufacture stevedoring equipment. It was agreed that each party to
Share of output    LO3, 4 Alice Ltd is a mining company operating in Victoria. Its main areas of mining are open‐pit gold mines and iron ore mines. In 2019 while exploring for ore the
Operators share output   LO4 Brisbane Ltd enters into an arrangement with another operator, Ipswich Ltd, to establish an unincorporated joint operation to produce a drug that assists both
Unincorporated joint operation  LO3, 4 On 1 July 2018, Esperence Ltd entered into a joint agreement with Walpole Ltd to establish an unincorporated joint operation to manufacture timber‐felling
Sharing output  LO3, 4 On 1 July 2019, Darwin Ltd entered into a joint agreement with Broome Ltd to form an unincorporated entity to produce a new type of widget. It was agreed that each party to
Management Fees Supplied By One Of The Joint Operators  LO4 On 1 July 2019, Broome Ltd and Kalbarri Ltd agreed to a joint operation that would be involved in the production of furniture. The
Contribution of plant  LO3, 4 On 1 July 2019, Tully Ltd and Cooktown Ltd signed a contractual agreement to form a joint operation for the manufacture of kitchen products. The agreement provided
Contributions of cash  LO3, 4 Gold Ltd’s main area of interest is the production of glass products. Star Ltd manufactures products that require the employment of artists with skills in fine
ACCOUNTING FOR AN ASSET USED BY A NUMBER OF COMPANIES Raby Ltd and Bay Ltd are companies that have newly discovered oil wells in a Middle‐Eastern country. There is some distance to the nearest port
CLASSIFICATION OF A JOINT ARRANGEMENT Two smaller banks that operate in Australia are the Ballarat Bank and the St Martins Bank. These have in the past primarily offered domestic banking services to
EXISTENCE AND CLASSIFICATION OF A JOINT ARRANGEMENT The Chinese mining company Changchun Mining Ltd and the Australian mining company Gold Rush Ltd have agreed to set up a separate company, Dragon
CASE STUDY CLASSIFICATION OF A JOINT ARRANGEMENT Falls Ltd and Creek Ltd decided to jointly undertake the manufacture of an electric car. They formed Silver Ltd, which will manufacture the car. Falls
How are joint operations accounted for?
How are joint ventures accounted for?
What are the key steps in classifying a joint arrangement into joint ventures and joint operations?
How does a joint venture differ from a joint operation?
How does joint control differ from control as used in classifying subsidiaries?
What is meant by ‘joint control’?
What is a joint arrangement?
Sale of shares in subsidiary by parent resulting in loss of control   LO5 Insomnia Ltd acquired 80% of the issued shares of Sleepy Ltd on 1 July 2018 for $20 375 when the shareholders’ equity
Sale of shares in subsidiary by parent without loss of control   LO5 Pretty Ltd acquired 80% of the issued shares of Smart Ltd on 1 July 2018 for $20 375 when the shareholders’ equity of
Acquisition of additional shares in a subsidiary by parent   LO5 Peter Ltd acquired 80% of the issued shares of Sam Ltd on 1 July 2018 for $32 000 when equity of Sam Ltd consisted of: Share
Acquisition of additional shares in subsidiary by parent   LO5 On 1 July 2020, K Ltd acquired 60% of the issued shares of L Ltd for $66 000 cash when the equity of L Ltd consisted of share
Sale of shares with loss of control   LO5 X Ltd acquired 80% of the issued shares of Y Ltd for $700 000 on 1 July 2020 when the equity of Y Ltd consisted of $400 000 capital and $300 000
Sale of shares with no loss of control   LO5 On 1 July 2020, A Ltd acquired 80% of the shares issued by B Ltd for $85 000. At this date, the shareholders’ equity of B Ltd consisted of share
Consolidated financial statements, multiple subsidiaries, acquisitions on the same date    LO3 On 1 July 2020, United States Ltd acquired 60% of the issued shares of Peru Ltd for $108 000.
Consolidation worksheet entries, analysis of non‐controlling interest, sequential acquisitions    LO2, 3, 4, 5 A client of yours is the chief accountant of Comoros Ltd which, at 30 June
Consolidation worksheet entries, non‐sequential acquisitions    LO3, 4 On 1 July 2019, Indonesia Ltd acquired 75% of the issued shares of India Ltd for $320 000. At this date the statement
Consolidation worksheet entries, sequential acquisitions   LO3 On 1 July 2019, Brunei Ltd acquired (ex div.) 80% of the issued shares of Bhutan Ltd for $146 400. At this date, the equity of
Consolidation worksheet, consolidated financial statements, multiple subsidiaries, acquisitions on the same date   LO3 On 1 July 2020, Vanuatu Ltd acquired 80% of the issued shares in Vietnam
Consolidation worksheet entries, multiple subsidiaries, acquisitions on the same date   LO3 The statements of financial position of Tonga Ltd, Thailand Ltd and Tuvalu Ltd for the year ended 30
Consolidated financial statements, multiple subsidiaries, acquisitions on the same date   LO3 On 1 July 2016, the following balances appeared in the ledgers of the following three companies.
Consolidated financial statements, multiple subsidiaries, acquisitions on the same date   LO3 Pakistan Ltd acquired 75% of the issued shares of Peru Ltd on 1 July 2016 for $1 900 000. The
Calculation of the non‐controlling interest, multiple subsidiaries, acquisitions on the same date  LO3 On 1 July 2019, Nauru Ltd acquired 60% of the issued shares of Nepal Ltd for $300 000, and
Consolidation worksheet entries, multiple subsidiaries, acquisitions on the same date  LO3 On 1 July 2017, Laos Ltd acquired 70% of the issued shares of Maldives Ltd for $100 000 and Maldives Ltd
Calculation of the non‐controlling interest, multiple subsidiaries, acquisitions on the same date  LO3 On 1 July 2017, Fiji Ltd acquired 75% of the issued shares of India Ltd at a cost of $280
Consolidation worksheet entries, multiple subsidiaries, acquisitions on the same date  LO3 On 1 July 2018, Canada Ltd acquired 80% of the issued shares of China Ltd and China Ltd acquired 75% of
CHANGES IN OWNERSHIP INTERESTS At 1 July 2018, Christina Ltd acquires 60% of the issued shares of Adeline Ltd, enough to give Christina Ltd control. At 30 June 2019, Christina Ltd acquires a further
DIVIDENDS AND NON‐CONTROLLING INTERESTS Andrew Brown is the group accountant for P Ltd. P Ltd owns 60% of A Ltd which owns 70% of B Ltd. He has just completed the preparation of the consolidated
CASE STUDY NON‐CONTROLLING INTEREST P Ltd owns 20% of the issued shares of B Ltd. In recent months it has been in takeover discussions with A Ltd, and agreement has finally been reached between the
What are the disclosure requirements relating to changes in ownership interest by a parent in a group?
Explain how to account for changes in ownership interests by a parent in a group that result in loss of control.
Explain how to account for sales of shares by a parent in a subsidiary that do not result in loss of control.
Explain the effects on the consolidation process when the acquisition is non‐sequential.
Explain sequential and non‐sequential acquisitions.
What effect does the existence of a direct and an indirect NCI have on the adjustments for dividends paid within a group?
What effect does the existence of a direct and an indirect NCI have on the adjustments for intragroup transactions?
Why does the indirect NCI receive a share of only post‐acquisition equity?
Explain the difference in the calculation of the direct and indirect NCI.
Discuss the two types of NCI that may exist in a multiple subsidiary group structure.
Consolidation with differences between carrying amount and fair value at acquisition date and intragroup transactions  LO3, 4, 5, 6, 7 Zoe Ltd purchased 100% of the shares of Matilda Ltd on 1 July
Consolidation with differences between carrying amount and fair value at acquisition date, impairment of goodwill and intragroup transactions  LO1, 2, 3, 4, 5, 6, 7 Financial information for Kaija
Consolidation worksheet with pre-acquisition equity transfers and intragroup transactions  LO3, 4, 5, 6, 7 On 1 January 2017, Olivia Ltd acquired all the share capital of Chloe Ltd for $300 000.
Intragroup transfers of inventories, non-current assets, services and borrowings   LO2, 3, 4, 5, 7 Judith Ltd owns all the share capital of Mary Ltd. The income tax rate is 30%. The following
Intragroup transfers of inventories, non-current assets, services and dividends  LO2, 3, 4, 5, 6 Karen Ltd owns all the share capital of Anne Ltd. The income tax rate is 30%. The following
Current and prior period intragroup borrowings  LO2, 7 Tony Ltd owns all the share capital of Sean Ltd. The following transactions are independent. (a) Sean Ltd gives $50 000 as an interest-free
Current and prior period intragroup debentures   LO2, 7 Pedro Ltd owns all the share capital of Juan Ltd. The following transactions are independent. (a) On 1 January 2019, Juan Ltd issues 10
Current and prior period intragroup dividends  LO2, 6 Maggie Ltd owns all the share capital of Peggy Ltd. The following intragroup transactions took place during the periods ended 30 June 2019 or
Current and prior period intragroup services  LO2, 5 Alice Ltd owns all the share capital of Isabella Ltd. The following intragroup transactions took place during the periods ended 30 June 2019 or
Current period intragroup transfers of inventories and non-current assets  LO2, 3, 4 Isolde Ltd owns all the share capital of Annabelle Ltd. The income tax rate is 30%. During the period ended 30
Current and prior periods intragroup transfers of non-current assets   LO2, 4 Fred Ltd owns all the share capital of Toby Ltd. The income tax rate is 30%. The following transactions took place
Current and prior periods intragroup transfers of non-current assets  LO2, 4 Sophie Ltd owns all the share capital of Ruby Ltd. The income tax rate is 30%. The following transactions took place
Current and prior periods intragroup transfers of inventories  LO2, 3 Charlotte Ltd owns all the share capital of Aloise Ltd. The income tax rate is 30%. The following transactions took place
Current and prior periods intragroup transfers of inventories  LO2, 3 Amani Ltd owns all of the share capital of Rebecca Ltd. The income tax rate is 30%. The following transactions took place
DEPRECIATION EXPENSE At the beginning of the current period, Jessica Ltd sold a depreciable asset to its wholly owned subsidiary, Amelie Ltd, for $80 000. Jessica Ltd had originally paid $200 000
CASE STUDY CONSOLIDATION ADJUSTMENTS Jessica Ltd sold inventories during the current period to its wholly owned subsidiary, Amelie Ltd, for $15000. These items previously cost Jessica Ltd $12 000.
Are adjustments for post-acquisition intragroup dividends different from those for pre-acquisition intragroup dividends? Explain.
When are profits realised on transfers of depreciable assets within the group?
Where a previous period intragroup transaction involves a depreciable asset, why is retained earnings adjusted?
Where a current period intragroup transaction involves a depreciable asset, why is depreciation expense adjusted?
When are profits realised in relation to inventories transfers within the group?

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