QUESTION 11. After initial recognition, goodwill is measured in which of thefollowing ways?at costat fair valueat cost less accumulated impairment lossesat cost less accumulated amortisation0.5 pointsQUESTION 21. Which of the following statements accurately describes theelimination entry to eliminate pre-acquisition shareholders’ funds?It is made once at the time of the first consolidation of the economicentity’s accounts in order to eliminate the parent entity’s investmentin the subsidiary against the non-monetary assets of the controlledentity.It is made each time the consolidation is performed in order to adjustthe carrying value of the controlled entity’s non-current assets totheir fair value.It is carried out once at the date that control of the subsidiary isachieved in order to create the goodwill or discount and eliminate theparent entity’s equity against the controlled entity’s investment.It is made each time the consolidation is performed in order toeliminate the parent entity’s investment in the controlled entityagainst the equity of the controlled entity. Any adjustments necessaryto bring the non-current assets of the controlled entity to fair valueare made before the elimination entry and any difference between theconsideration paid and the fair value of the net assets of thecontrolled entity are recognised.0.5 pointsQUESTION 31. On 1 July 2012, Goliath Ltd acquires all shares in David Ltdfor $800 000. The fair value of net assets acquired is $920 000comprising of $600 000 in share capital and $320 000 in retainedearnings. What is the appropriate elimination entry for thisinvestment that is in accordance with AASB 3 Business Combinations andAASB 10 Consolidated Financial Statements?’ alt=Picture v_shapes=”_x0000_i1025″>alt=Picture v_shapes=”_x0000_i1028″>0.5 pointsQUESTION 41. ‘Control’ exists when the parent owns less than half of thevoting power of an entity when:No other entity owns more than half either.There is power to govern the financial and operating policies of theentity under a statute.There is power to govern the financial and operating policies of theentity under an agreement.There is power to govern the financial and operating policies of theentity under a statute and there is power to govern the financial andoperating policies of the entity under an agreement.0.5 pointsQUESTION 51. In what situation does an excess on acquisition arise and howdoes AASB 3 require it to be treated?An excess arises when the fair value of the purchase consideration isgreater than the nominal value of the assets purchased. AASB 3requires an excess to be eliminated by recognising it as a gain in theperiod in which the entity was purchased.An excess arises when the fair value of the purchase consideration isgreater than the nominal value of the assets purchased. AASB 3requires the fair values of the monetary assets acquired to beproportionately decreased until the excess is eliminated. If an excessbalance remains it must be recognised as an expense in the statementof comprehensive income.An excess arises when the cost of acquisition exceeds the fair valueof the identifiable net assets purchased. AASB 3 requires the equityof the purchased entity to be proportionately decreased until theexcess is eliminated.An excess arises when the fair value of the identifiable net assetsacquired by the entity exceeds the fair value of the considerationpaid. AASB 3 requires a reassessment of the identification andmeasurement of the identifiable net assets, and a reassessment of themeasurement of the fair value of the consideration paid. If an excessremains after the reassessment it must be recognised as income inprofit or loss.0.5 pointsQUESTION 61. On 1 May 2014 Moorooba Exporters Ltd sells inventory to acustomer in Singapore. The inventory is sold for $S300 000 and paymentis not due until 30 July 2014. The reporting date for MooroobaExporters Ltd is30 June. The exchange rate information is:Moorooba Exporters uses a perpetual inventory system. What journalentries are required in Moorooba Exporters Ltd’s books to record thetransaction, adjustments at the end of the period and settlement inaccordance with AASB 121 (rounded to the nearest whole A$)? What isthe realised gain/loss on the monetary item?Realised loss $45 000Realised loss $66 6671 May 2014DrAccounts receivable272 727CrSales272 72730 June 2014DrForeign currency loss32 727CrAccounts receivable32 72730 July 2014DrAccounts receivable75 789CrForeign currency gains75 789DrCash315 789CrAccounts receivable315 789Realised gain $43 062Realised gain $90 000Realised loss $45 000Realised loss $66 6671 May 2014DrAccounts receivable272 727CrSales272 72730 June 2014DrForeign currency loss32 727CrAccounts receivable32 72730 July 2014DrAccounts receivable75 789CrForeign currency gains75 789DrCash315 789CrAccounts receivable315 789Realised gain $43 062Realised gain $90 0000.5 pointsQUESTION 71. On 1 May 2015 Harriet’s Importers Ltd acquires goods from asupplier in Britain. The goods are shipped f.o.b. from England on 1May 2015. The cost of the goods is £200 000. The amount has not beenpaid at period end 30 June 2015. Exchange rates are as follows:Harriet’s Importers Ltd uses a perpetual inventory system.What entries are required at transaction date and reporting date(rounded to the nearest whole A$)?alt=Picture v_shapes=”_x0000_i1096″>a0.5 pointsQUESTION 81. The spot rate is defined in AASB 121 as:the rate at which the currency to be exchanged is currently sellingagainst a bundle of currencies of major trading partners.the exchange rate for immediate delivery of currencies to be exchanged.one identified exchange rate for the relevant currencies from theperiod on or around the date of the transaction.the current exchange rate as implied by forward-exchange contracts inplace at the time of the transaction.0.5 pointsQUESTION 91. The following items are in the financial statements of PirieLtd as at 30 June 2015.Which of the following combinations identifies all items required tobe translated at spot rate on 30 June 2015 as prescribed in AASB 121The Effects of Changes in Foreign Exchange Rates?I and IIII and IIIIII and IVI, II, III and IV0.5 pointsQUESTION 101. Which of the following items is within the scope of AASB 121The Effects of Changes in Foreign Exchange Rates?translation of cash flows from foreign operationspresentation in a statement of cash flows of the cash flows arisingfrom transactions in a foreign currencyhedge accounting for hedging a net investment in a foreign operationpresentation of an entity’s financial statements in a foreign currency0.5 pointsQUESTION 111. Intragroup transactions that are to be eliminated in theconsolidated accounts include:inter-entity loans.inter-entity sales of non-current assets.the payment of management fees to a member of the group.all of the given answers.1 pointsQUESTION 121. Stormy Ltd has purchased all the issued capital of Cloud Ltd atthe beginning of the current period. At the end of the period CloudLtd declares a dividend of $50 000 that is identified as being paidout of pre-acquisition profits. What entries would Stormy Ltd andCloud Ltd make in their own books? (Assume Stormy Ltd accrues thedividends of subsidiaries when they are declared.)’ alt=Picture v_shapes=”_x0000_i1031″>1 pointsQUESTION 131. Woody Ltd sold inventory items to its subsidiary Buzz LightyearLtd and had the following inter-company transactions:Cost of inventory $300 000 sold for $375 000 for the year ended 30June 2012. One-third of the inventory items were sold by BuzzLightyear Ltd to external parties before the financial year end 30June 2012.Cost of inventory $100 000 sold for $75 000 for the year ended 30 June2013. Half of the inventory items were sold by Buzz Lightyear Ltd toexternal parties before the financial year end 30 June 2013.Ignoring taxes, which of the following statements is correct withrespect to these transactions for the year ended 30 June 2013Consolidated sales will decrease by $100 000.Consolidated sales will increase by $275 000.Consolidated profit will increase by $62 500.Consolidated profit will increase by $12 000.1 pointsQUESTION 141. Blue Ltd sold inventory items (with a cost of $90 000) to itssubsidiary Maroon Ltd for $120 000. Half of the inventory items weresold by Maroon Ltd to external parties before the financial year end.Ignoring taxes, which of the following statements is correct withrespect to these transactions?Consolidated sales will decrease by $60 000.Consolidated sales will decrease by $100 000.Consolidated profit will decrease by $15 000.Consolidated profit will decrease by $20 000.1 pointsQUESTION 151. French Ltd owns 100% of the issued capital of Pastry Ltd.During the period ended 30 June 2014, Pastry Ltd sold inventory thatcost $190 000 for $300 000 to French Ltd. Sixty per cent of thisinventory remains on hand in French Ltd at the end of that year. Bothcompanies use a perpetual inventory system. The taxation rate is 30%.What consolidation journal entries are required in relation to theinter-company transaction for the period ending 30 June 2015?
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