San Beda College Alabang
Accountancy Department
Advanced Financial Accounting and Reporting 2
NAME: _______________CORPUZ__________________________ Yr & Sec: _________________________
QUIZ 3 - Consolidation
SET A
Multiple Choice
Identify the choice that best completes the statement or answers the question.
1. According to PFRS 10, which of the following statements is true?
a. A parent entity is required to consolidate its subsidiaries only for internal reporting purposes.
b. A parent entity is encouraged but not required to consolidate its subsidiaries.
c. A parent entity is required to consolidate its subsidiaries.
d. A parent need not consolidate its subsidiaries if the businesses of the subsidiaries are different and
not related to the business of the parent.
2. According to PFRS 10, which of the following is not an element of control?
c. major holdings
a. ability to affect return.
b. power
d. exposure, or rights, to variable returns
3. Non-controlling interests shall be presented in the consolidated statement of financial position
a. within equity, separately from the equity of the owners of the parent.
b. within equity, not distinguished from the equity of the owners of the parent
c. as a mezzanine item between liabilities and equity
d. any of these as a matter of accounting policy choice
4. Kiwi, Inc. acquired Mori Co. on December 31, 20x0 in a business combination. Both Kiwi and Mori were incorporated and
began business on January 1, 1999. Both Kiwi and Mori reported net income for 1999 and 20x0. Consolidated retained
earnings for Kiwi, Inc and Subsidiary as of December 31, 20x0 will include the net income of Mori Co., from what date?
a. It will not include the net income of Mori Co.
b. January 1, 20x0 to December 31, 20x0 only
c. January 1, 20x0
d. January 1, 1999
5. Which of the following statements is true?
a. Consolidation is performed by adding line by line similar items of assets, liabilities, income and expenses of both the
parent and its subsidiaries.
b. In a consolidated statement of financial position prepared immediately after a business combination, the consolidated
total equity is always equal to the parent’s total equity.
c. The amount of goodwill is not affected when non-controlling interest is measured at fair value rather than at the noncontrolling interest’s proportionate share in the net assets of the acquiree.
d. All of these statements are true.
6. According to the PFRS for SMEs a parent entity shall present
a. consolidated financial statements and separate financial statements
b. separate financial statements
c. consolidated financial statements
d. none of these
7. A subsidiary shall be excluded from consolidation when
a. There is evidence that control is intended to be temporary because the subsidiary is acquired with the intention to dispose
of it within twelve months from the date of acquisition.
b. The business activities of the subsidiary are dissimilar from those of the other entities within the group.
c. The investor is a venture capital organization, mutual fund, unit trust or similar entity.
d. The subsidiary is operating under severe long-term restrictions that significantly impair its ability to transfer funds to the
parent.
8. A "group" for consolidation purposes is
a. An entity that obtains control over entities or businesses.
b. An entity, including an unincorporated entity such as partnership that is controlled by another
c.
d.
entity.
An entity that has one or more subsidiaries.
A parent and all its subsidiaries.
9. It is that portion of the profit or loss and net assets of a subsidiary attributable to equity interest that are not owned directly or
indirectly through subsidiaries by the parent.
c. Non-controlling interest
a. Subsidiary interest
b. Residual interest
d. Controlling interest
10. It is the entity that has the controlling financial interest.
a. Parent
c. Associate
b. Affiliate
d. Investor
11. Which of the following terms best describes the financial statements of a parent in which the investments are accounted for on
the basis of the direct equity interest?
a. Separate financial statements
c. Consolidated financial statements
b. Single financial statements
d. Combined financial statements
12. An entity acquired an investment in a subsidiary with the view to dispose of this investment within six months. The investment
in the subsidiary has been classified as held for sale and is to be accounted for in accordance with PFRS 5. The subsidiary has
never been consolidated. How should the investment in the subsidiary be treated in the financial statements?
a. The subsidiary should not be consolidated but PFRS 5 should be used.
b. Equity accounting should be used.
c. The subsidiary should remain off balance sheet.
d. Purchase accounting should be used.
13. X owns 50% of Y's voting shares. The board of directors consists of 6 members. X appoints three of them and Y appoints the
other three. The casting vote at meetings always lies with the directors appointed by X. Does X have control over Y?
a. No, X owns only 50% of the entity's shares and therefore does not have control.
b. No, control is equally split between X and Y.
c. Yes, X holds 50% of the voting power and has the casting vote at board meetings in the event there
is no majority decision.
d. No, control can be exercised only through voting power, not through a casting vote.
14. A subsidiary, acquired for cash in a business combination, owned inventories with a market value greater than the book value
as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would include this
difference as part of
a. Deferred credits
c. Retained earnings
b. Goodwill
d. Inventories
15. When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting
concept of
a. Reliability
c. Legal entity
d. Economic entity
b. Materiality
16. Are the following statements TRUE or FALSE, according to IAS 27 consolidated an Separate Financial Statements.
Statement I:
Consolidated financial statements must be prepared using uniform accounting policies,
Statement II:
The non-controlling interest in the net assets of subsidiaries may be shown by way of note to the
consolidated statement of financial position
Statement I
Statement II
a. False
False
c. True
True
d. True
False
b. False
True
17. When push-down accounting has been implemented
a. Subsidiary records have been adjusted to reflect the market value increases resulting from the purchase by a parent
company.
b. The minority interest in the subsidiary is shown on its own line in the equity section of the subsidiary only balance sheet.
c. Any debt incurred by the parent in acquiring the subsidiary is recorded at its market value by the subsidiary.
d. The issuer and the combiner's equity sections are merged.
Use the following information for the next questions:
Strings Corp. acquired 80% of Wind Corp.'s outstanding shares. The statements of financial position of both entities
immediately after the acquisition are shown below:
Strings Co.
Wind Co.
Investment in subsidiary (at cost)....................430,000
Other assets.................................................. 1,570,000...............750,000
Assets...........................................................2,000,000...............750,000
Liabilities.........................................................750,000...............400,000
Ordinary share capital..................................1,000,000...............310,000
Retained earnings ............................................250,000.................40,000
Liabilities and Stockholders' equity.............2,000,000...............750,000
At the date of purchase, the fair value of Wind's assets was P50,000 more than the aggregate carrying amounts. Noncontrolling interest is measured under the proportionate share method.
18. In the consolidated balance sheet prepared immediately after the acquisition, the consolidated total assets should amount to:
a. 2,910,000
c. 2,480,000
d. 2,370,000
b. 2,430,000
19. In the consolidated balance sheet prepared immediately after the acquisition, the consolidated stockholders' equity should
amount to:
a. 1,330,000
c. 1,280,000
b. 1,630,000
d. 1,250,000
Use the following information for the next questions:
Beni Corp. purchased 100% of Carr Corp.'s outstanding capital stock for P430.000 cash. Immediately before the acquisition,
the balance sheets of both corporations reported the following:
Beni
Carr
Assets...........................................................2,000,000...............750,000
Liabilities.........................................................750,000...............400,000
Common stock..............................................1,000,000...............310,000
Retained earnings ............................................250,000.................40,000
Liabilities and stockholders' equity.............. 2,000,000...............750,000
At the date of purchase, the fair value of Carr's assets was P50,000 more than the aggregate carrying amounts.
20. How much is the goodwill in the consolidated balance sheet prepared immediately after the acquisition?
a. 30,000
c. 60,000
b. 40,000
d. None of these
21. In the consolidated balance sheet prepared immediately after the acquisition, the consolidated stockholders’ equity should
amount to:
a. 1,250,000
c. 1,650,000
b. 1,600,000
d. 1,680,000
Use the following information for the next questions:
On January 1, 20x1, Square Co. acquired 80% interest in Circle Co. On acquisition date, Circle’s net identifiable assets have a
carrying amount of P296,000. Circle’s identifiable assets approximated their fair values except for inventory with carrying
amount of 192,000 and fair value of 24,000 and equipment with carrying amount of P160,000 and fair value of P192,000. The
remaining useful life of the equipment is 4 years. Non-controlling interest was measured using the proportionate share method.
The statements of financial position of the entities on December 31, 20x1 are as follows:
Square Co.
Circle Co.
ASSETS
Cash..............................................................................................392,000...............316,000
Inventory......................................................................................420,000.................60,000
Investment in subsidiary (at cost)................................................300,000
Equipment, net.............................................................................560,000...............120,000
TOTAL ASSETS.......................................................................1,872,000...............496,090
LIABILITIES AND EQUITY
Trade and other payables..............................................................292,000...............120,000
Share capital.................................................................................940,000...............200,000
Retained earnings.........................................................................440,000...............176,000
Total equity................................................................................1,380,000...............376,000
TOTAL LIABILITIES AND EQUITY.....................................1,672,000...............496,000
No dividends were declared by either entity during 20x1. There were also no inter-company transactions and impairment in
goodwill.
22. How much is the consolidated retained earnings on December 31, 20x1?
a. 392,000
c. 472,000
b. 378,000
d. 522,000
23. How much is the consolidated total equity as of December 31, 20x1?
c. 1,492,000
a. 1,412,000
b. 1,415,000
d. 1,380,000
Use the following information for the next questions:
At the beginning of the year, Fast Co. acquired 70% interest in Slow Co. On acquisition date, Circle’s identifiable assets
approximated their fair values except for an inventory whose fair value exceeded its carrying amount by P10,000 and a
building whose fair value exceeded its carrying amount by P80,000. The building has a remaining useful life of 5 years.
At the end of the year, Fast Co. and Slow Co. reported profits of P400,000 and P80,000, respectively.
No dividends were declared by either entity during year. There were also no inter-company transactions and impairment in
goodwill.
24. How much is the consolidated profit in 20x1?
a. 448,000
b. 388,000
c.
d.
454,000
496,000
25. How much is the consolidated profit attributable to owners of the parent in 20x1?
a. 437,800
c. 381,800
b. 396,800
d. 448,800
26. Baiter Inc. acquired Jersey Company on January 1,2011. When the purchase occurred Jersey Company had the following
information related to fixed assets:
Land............................................................................................P 80,000
Building........................................................................................200,000
Accumulated Depreciation........................................................(100,000)
Equipment....................................................................................100,000
Accumulated Depreciation..........................................................(50,000)
The building has a 10-year remaining useful life and the equipment has a 5-year remaining useful life. The fair values of the
assets on that date were:
Land...........................................................................................P100,000
Building........................................................................................130,000
Equipment......................................................................................75,000
What is the 2011 depreciation expense Baiter will record related to purchasing Jersey Company?
a. P30,000
c. P15,000
b. P 8,000
d. P28,000
27. The Lampara Company acquired a 70% interest in The Oak Company for P1,960,000 when the fair value of Oak's identifiable
assets and liabilities was P700,000 and elected to measure the non-controlling interest at its share of the identifiable net assets.
Annual impairment reviews of goodwill have not resulted in any impairment losses being recognized. Oak's current statement
of financial position shows share capital of P100,000, a revaluation reserve of P300,000 and retained earnings of P1,400,000.
Under PFRS 3 Business combinations, what figure in respect of goodwill should now be carried in Lampara's consolidated
statement of financial position?
a. P160,000
c. P1,260,000
b. P700,000
d. P1,470,000
28. Pluro Company purchases 8,000 shares of Sun Company for P64 per share. Before acquisition, Sun Company has the
following balance sheet:
Assets
Liabilities and Equity
Cash and cash equivalents............P20,000
Current liabilities.........................P250,000
Inventory......................................280,000
Common stock, P5 par....................50,000
Property and equipment...............400,000
APIC..............................................130,000
Goodwill....................................... 100,000
Retained earnings..........................370,000
Total assets..................................P800,000
Total liabilities and equity........... P800,000
On the date of acquisition, Pluto believes that the inventory has a fair value of P400,000 and that the property and equipment
is worth P500,000.
On the date of acquisition, what is the goodwill (gain on acquisition) to be reported on the consolidated statements?
a. P(24,000)
c. P 30,000
b. P 24,000
d. P(30,000)
29. On January 1, 2011, Ritt Corp. purchased 80% of Shaw Corp.'s P10 par common stock for P975,000. On this date, the
carrying amount of Shaw's net assets was P1,000,000. The fair values of Shaw's identifiable assets and liabilities were the
same as their carrying amounts except for plant assets (net) with fair values of P100,000 in excess of their carrying amount.
The fair value of the non-controlling interest in Shaw on January 1, 2011, was P250,000. For the year ended December 31,
2011, Shaw had net income of P190,000 and paid cash dividends totaling P125,000. In the December 31, 2011 consolidated
statement of financial position, non-controlling interest should be reported at
a. P233.000
c. P213,000
b. P263,000
d. P200,000
30. Bacolod Company acquired 55% of the outstanding common stock of Silay Company on August 1, 2012 at a total cost of
P5,005,000..At acquisition date, Silay's common stock and retained earnings amounted to P200,000 and P4,800,000,
respectively All of Silay's assets and liabilities had fair values equal to book values as of the acquisition date except for patents
which had a fair value of P1,800,000.and a book value of P400,000 The patents have a remaining life of five years. For 2012,
Silay had the following earnings and dividends.
Jan - Jul
Aug - Dec
Net income....................................................P500,000..........P1,100,000
Dividends paid..............................................P300,000..........P1,200,000
Compute the net income attributable to the non-controlling interest?
a. P594,000
c. P369,000
b. P667,500
d. P442,500