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Question 1
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16) Rainbow Co. owns the following investment in other companies.

Rainbow Co. also has appointed five of the seven directors of Blue Co.
Which of the following investments are accounted for as subsidiaries in the consolidated
accounts of Rainbow Co.

Select one:

a.
Green Co.

b.
Red Co.

c.
Green and Blue

d.
All of them
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Question 2
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04) In the equity method of accounting for a subsidiary’s operations, the parent company’s
share of the subsidiary’s adjusted net income not distributed as dividends is credited in a
closing entry to the following leger account:

Select one:

a.
Intercompany Investment Income

b.
Retained earnings of subsidiary

c.
Retained earnings

d.
Investment in Subsidiary Common Stock
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Question 3
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05) Which of the following statement/s regarding the method of consolidation is true:

(1) Subsidiaries are consolidated in full

Select one:

a.
Neither statement

b.
Statement (1) only

c.
Both statements

d.
Statement (2)
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Question 4
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18) Marie acquired a 100% shareholding in Luke for $500,000 when Luke's fair value of net
assets was $400,000. The next year the recoverable amount of Luke was $150,000 and the
fair value of Luke's net assets was $120,000.

Determine the amount of impairment gain/loss.

Select one:

a.
$20,000 loss

b.
$20,000 gain

c.
$50,000 gain

d.
$50,000 loss
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Question 5
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20) IAS 28 Investment governs the identification of associates. Which of the following is
true?

Select one:

a.
The investing equity owned by its hare since the incorporation of the investee equity

b.
The investor holds greater than 20% but less than 50% of the entity power of the investee

c.
The investing entity has some influences over entities in the same industry.

d.
The investor often trades with the invest
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15) How soon does goodwill acquired in a business combination need to be tested after an
acquisition?

Select one:

a.
The year after acquisition

b.
The year of acquisition

c.
Two years after acquisition

d.
None of the above
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Question 7
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02) On 30 June 2010 Parent owns 80% of the share capital of Subsidiary. The non-
controlling interest had a fair value of $1,300,000. Extract from the statements of financial
position of Subsidiary at 30 June 2014 are shown below:

Statement of financial position:

What figure for non-controlling appear in the consolidated statement of financial position
as at 30 June 20X6

Select one:

a.
$1,220,000

b.
$1,300,000

c.
$1,480,000

d.
$1,400,000
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Question 8
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12) Pinky Co. acquired 80% 0f Scar Co. ordinary share capital on 1 January 2012. As at 31
December 2012 the extract from their individual statements of financial position showed:

As a result of trading during the year Pinky Co.'s receivables balance included an amount
due from Scar Co. of $4,600.
What should be the shown as the consolidated figure for receivables and payables?

Select one:

a.
$80,000 and $112,000

b.
$75400 and $112,000

c.
$74,000 and $103,600

d.
$75,400 and $107,400
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Question 9
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10) Refer to 8) above. Calculate the gain arising that will be recognized in the income
statement.

Select one:

a.
$2,500

b.
$2,000

c.
$500

d.
None of the above
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Question 10
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17) In 2011 Ace Inc. acquired a 100% equity interest in Beauty Co. for cash consideration of
$125,000. Beauty's identifiable net assets at fair value were $100,000. Goodwill of $5,000 was
identified and recognized.

In the subsequent years Beauty increased net assets by $20,000 to $120,000. This is reflected
in equity attributable to the parent. Ace then dispose of 30% of its equity interest to non-
controlling interest for $40,000.

What is the increase or decrease to be recorded in equity?

Select one:
a.
Positive $5,000

b.
Negative $4,000

c.
Positive $4,000

d.
Negative $5,000
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14) On October 1, 2012, Peacock Inc. acquired 80% of the outstanding common stock of
Shade Co. for $480,000. Both the book value and the fair market value of the subsidiary's
net assets on that date were equal to $600,000. During 2012 Shade reports revenue of
$125,000 and expenses of $50,000, both of which occur evenly throughout the year. On a
consolidated income statement for the year ended December 31, 2012, what should be
reported as the non-controlling interest in Shade's net income and as pre-acquisition
income?

Select one:

a.
$56,250 and $18,750

b.
$15,000 and $11,250

c.
$56,250 and $3,750

d.
$15,000 and $5,000
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Question 12
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07) How is the portion of consolidated earnings to be assigned to minority interest in net
income of subsidiary computed?

Select one:

a.
The net income of the parent company is subtracted from the subsidiary’s net income to
compute the minority interest.

b.
The subsidiary’s entire net income is allocated to the minority interest

c.
The amount of the subsidiary’s net income recognized for consolidation purposes is
multiplied by the minority’s percentage ownership

d.
The amount of consolidated net income determined in the working paper for consolidated
financial statements is multiplied by the minority interest percentage on the balance sheet
date.
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Question 13
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19) An impairment test is carried out at:

Select one:

a.
Each reporting date

b.
Interim balance sheet date

c.
None of the above

d.
(a) and (b)
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Question 14
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09) Refer to 8) above. Calculate the goodwill arising on this transaction.

Select one:

a.
$2,000

b.
$20,000

c.
$12,500

d.
$25,000
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Question 15
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06) Which of the following is a characteristic of the cost method of accounting for subsidiary
operations?

Select one:

a.
Parent company net income equals consolidated net income.

b.
More working paper eliminations are required than for the equity method of accounting.

c.
Consolidated amounts differ from the comparable amounts under the equity method of
accounting.

d.
None of the above
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Question 16
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01) Jack acquired 80% of the voting equity shares of Jill. Jill had the following equity at the
date of acquisition.
$
Ordinary share $1 1,000,000

Retained Earnings 800,000

Select one:

a.
$420,000

b.
$60,000

c.
$300,000

d.
$48,000
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Question 17
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13) An entity in which an investor has significant influence but not control or joint control, is
a/an

Select one:

a.
Partner

b.
Company

c.
Parent

d.
Associate
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Question 18
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08) Nina acquired a 75% controlling interest in Pinta in two stages.

1) In 2012, Nina acquired 15% equity interest for cash consideration of$10,000. Nina classified
the interest as available- for- sale under IAS 39. From 2012 to the end of 2014, Nina reported
fair value increases of $2,000 in other comprehensive income (OCI)
2) On January 2014, Nina acquired a further 60% equity for a cash consideration of $60,000.
Nina identified net assets of Pinta with a fair value of $80,000.
Nina elected to measure non-controlling interest at their share of net assets. On the date of
the acquisition, the previously-held 15% interest had a fair value of $12,500.
Calculate the cost of investment that will be used in computing goodwill

Select one:

a.
$60,000

b.
$10,000

c.
$80,000

d.
$70,000
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11) On January 1, 2012 Peter Inc. acquired 80% of the outstanding common stock of Sam
Co. for $540,000. Sam’s net assets had a book value $600,000 on that date although
equipment with a ten-year life having a book value of $10,000 had a fair market value of
$30,000. Any remaining allocation is to go to goodwill. On December 31, 2012, Sam reports
revenues of $125,000 and expenses of $50,000 while Peter reports operating revenue of
$400,000 and expenses of $250,000. What is the consolidated net income for 2012?

Select one:

a.
$225,000

b.
$228,800

c.
$223,400

d.
$255,300
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Question 20
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03) Which of the following journal entry formats is appropriate under the equity method of
accounting to record the parent company's share of a subsidiary's dividend declaration?
Select one:

a.
I

b.
II

c.
III

d.
IV