Indirect Ownership Interests – Test Bank | 9e

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Chapter 28 Testbank

1. In calculating indirect non-controlling interests, intragroup transactions need not be eliminated.

True   False

2. In non-sequential acquisition, the parent acquires its interest in the intermediate subsidiary before the intermediate subsidiary acquires its interest in the other subsidiary.

True   False

3. In a sequential acquisition, the consolidated financial statements will be accounted for in the same manner as when acquisitions occur simultaneously.

True   False

4. In a non-sequential acquisition, the consolidated financial statements will be accounted for in the same manner as when acquisitions occur simultaneously.

True   False

5. The following diagram represents the ownership of issued share capital of the companies in a group. What is the total outside equity interest in D Ltd?

A. 14 per cent

B. 10 per cent

C. 30 per cent

D. 22 per cent

6. The following diagram represents the ownership of issued share capital of the companies in a group. What is the total non-controlling interest in D Ltd?

A. 20 per cent

B. 33.6 per cent

C. 60 per cent

D. 24.8 per cent

7. Pudding Ltd acquired a 90 per cent interest in Peaches Ltd on 1 July 2023 for a cash consideration of $2 300 000.

On the same date, Peaches Ltd acquired a 70 per cent interest in Cream Ltd for a cash consideration of $1 100 000.

The fair value of the net assets of each of the companies at acquisition is as follows:

Goodwill has been determined not to have been impaired. What would the analysis of direct and indirect interests in the subsidiaries and the elimination entries be for the consolidation for the period ended 30 June 2024?

A.

Analysis of equity interest

Elimination entries

B.

Analysis of equity interests

Elimination entries

C.

Analysis of equity interests

Elimination entries

D.

Analysis of equity interests

Elimination entries

8. Which of the following statements is an incorrect example to determine non-controlling interests in profits and capital and reserves?

A. The elimination of the parent's investment in a subsidiary will be done by eliminating the investment against the parent entity's direct ownership interest in pre-acquisition share capital and reserves.

B. The parent entity's interest in post-acquisition earnings will be based on the parent entity's direct and indirect interests.

C. The non-controlling interest in post-acquisition earnings will be based on the direct non-controlling interest.

D. The non-controlling interest in pre-acquisition capital and reserves will be based on the direct non-controlling interest only.

9. Which one of the following is not required for an investor to control an investee?

A. Power over the investee

B. Rights to variable returns from its involvement with the investee

C. The ability to use its power over the investee to affect the amount of the investor's returns

D. Direct ownership interest in the investee

10. The following diagram represents the ownership of issued share capital of the companies in a group.

What is the indirect parent entity interest and indirect non-controlling interest in D Ltd, respectively?

A. 12.6 per cent; 23.4 per cent

B. 23.4 per cent; 16.6 per cent

C. 40 per cent; 60 per cent

D. 60 per cent; 40 per cent

11. Jabba Ltd acquired a 70 per cent interest in Han Ltd on 30 June 2022 for $2 000 000.

On the same date, Han Ltd acquired a 60 per cent interest in Leia Ltd for a cash consideration of $1 600 000.

The purchase price represents the fair value of consideration transferred for both investments. The share capital and retained earnings at the date of acquisition are as follows:

What is the non-controlling interest in Han Ltd and Leia Ltd, respectively, on the date of acquisition using the partial goodwill method? (Round to the nearest dollar.)

A. $780 000; $960 000

B. $857 143; $1 066 667

C. $1 820 000; $1 440 000

D. $2 000 000; $1 600 000

12. A Ltd owns 85 per cent of the issued capital of B Ltd and B Ltd owns 95 per cent of the issued capital of C Ltd.

What is the total outside equity interest in C Ltd?

A. 23.5 per cent

B. 10.5 per cent

C. 19.25 per cent

D. 15 per cent

13. In ______________ , the parent acquires its interest in the intermediate subsidiary before the intermediate subsidiary acquires its interest in the other subsidiary.

A. a sequential acquisition

B. a non-sequential acquisition

C. an alternate acquisition

D. None of the given answers are correct.

14. If the carrying amount of goodwill is greater than its recoverable amount, an impairment loss on goodwill will ______________ .

A. not be recognised

B. be recognised

C. not occur

D. None of the given answers are correct.

15. In which of the following is it necessary to calculate the non-controlling interests' share?

A. Profits, capital and reserves

B. Profits alone

C. Capital alone

D. Reserves alone

16. In a sequential acquisition, the consolidated financial statements will be accounted for in the same manner as:

A. when acquisitions occur simultaneously

B. for non-sequential acquisitions

C. when acquisitions occur non-simultaneously

D. None of the given answers are correct.

17. The nature of an acquisition will impact how goodwill is calculated and how total _________ are calculated.

A. non-controlling interests

B. controlling interests

C. pre-acquisition capital

D. None of the given answers are correct.

18. An entity that is controlled by another entity is called a:

A. parent entity

B. subsidiary

C. stand-alone entity

D. None of the given answers are correct.

19. Consolidation of an investee shall begin from the date the investor obtains control of the investee and cease when the investor loses control of the investee as per ___________________ .

A. AASB 10

B. AASB 102

C. AASB 112

D. None of the given answers are correct.

20. With regards to related parties and other organisations within a group (economic entity), control means the power to govern the ______________ of an entity so as to obtain benefits from its activities.

A. board of directors

B. mandatory regulatory disclosures

C. financial and operating policies

D. None of the given answers are correct.

21. The term ______________ refers to that portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned by the parent.

A. controlling interests

B. non-controlling interests

C. direct interests

D. None of the given answers are correct.

22. The consolidated financial statements will also include the assets and liabilities and post-acquisition movements in reserves of subsidiaries in which the ultimate parent of the group has:

A. no direct ownership interest

B. direct ownership interest

C. neutral interest

D. None of the given answers are correct.

23. Control can be exercised on _________________.

A. direct ownership interest alone

B. indirect ownership interest alone

C. direct ownership interest or indirect ownership interest

D. None of the given answers are correct.

24. The parent entity's interest in post-acquisition profits and post-acquisition movements in reserves will be based on:

A. the combined total of the parent entity's direct and indirect interests

B. the parent entity's direct ownership interest alone

C. the parent entity's indirect ownership interest only

D. the sum of the parent entity's direct and indirect interests and the direct non-controlling interest

25. The non-controlling interest in pre-acquisition capital and reserves will be based on the ______ .

A. direct non-controlling interest only

B. indirect non-controlling interest only

C. direct non-controlling interest and indirect non-controlling interest

D. None of the given answers are correct.

26. The non-controlling interest in post-acquisition movement in reserves and post-acquisition profits will be based on the __________ .

A. direct non-controlling interest

B. indirect non-controlling interest

C. combined sum of both direct non-controlling interest and indirect non-controlling interest

D. None of the given answers are correct.

27. Summarise the calculations for recognising non-controlling interests, where both direct and indirect interests exist, in relation to:

(a) pre-acquisition share capital and reserves

(b) post-acquisition profits

(c) post-acquisition movements in reserves.

______________________________________________________________________________

28. Company A acquires a controlling interest of less than 100 per cent ownership in Company B, who in turn acquires a controlling interest of less than 100 per cent ownership in Company C, on the same day. The acquisition by Company B of Company C results in the recognition of goodwill on acquisition.

Explain why there is a need to adjust for the impairment of goodwill when calculating the non-controlling interest for Company B.

______________________________________________________________________________

29. Discuss how it is possible for one entity to control another entity without any direct ownership interest.

______________________________________________________________________________

30. What is control with regard to related parties and other organisations within a group?

______________________________________________________________________________

31. What is non-controlling interest?

______________________________________________________________________________

32. Provide the definition of consolidated financial statements as per AASB 10.

______________________________________________________________________________

33. AASB 10 describes when an investee is required to be consolidated and be designated as a subsidiary. Discuss.

______________________________________________________________________________

34. Discuss control as per paragraphs 6 and 7 of AASB 10.

______________________________________________________________________________

35. What is sequential acquisition of ownership interests?

______________________________________________________________________________

36. What is non-sequential acquisition of ownership interests?

______________________________________________________________________________

37. Why is it necessary to know the difference between sequential and non-sequential acquisition of ownership interests?

______________________________________________________________________________

38. Explain the difference between sequential and non-sequential acquisition of ownership interests.

______________________________________________________________________________

39. What are the two ways in which acquisitions occur?

______________________________________________________________________________

Chapter 28 Testbank