Advanced Financial Accounting II

Model Exit Questions

1. Which of the following is NOT a reason for a company to expand

through a combination, rather than by building new facilities?
[A] A combination might provide cost advantages.
[B] A combination might provide fewer operating delays.
[C]A combination might provide easier access to intangible assets.
[D] A combination might provide an opportunity to invest in a
company without having to take responsibility for its financial results.
2. A business merger differs from a business consolidation because
[A] A merger dissolves all but one of the prior entities, but a
consolidation dissolves all of the prior entities and forms a new
corporation.
[B] A consolidation dissolves all but one of the prior entities, but a
merger dissolves all of the prior entities.
[C]A merger is created when two entities join, but a consolidation is
created when more than two entities join.
[D] A consolidation is created when two entities join, but a merger is
created when more than two entities join.
3. The cost of a acquiree in a business combination includes all the
following except:
[A] Legal fees and finder’s fee. [C] Current fair value of PPE.
[B] Present value of debt security [D] Contingent consideration that is
determinable.
4. A target company’s defense against an unfriendly takeover that
involves the disposal of one or more profitable business segments of
the target is termed:
[A] Pac-man defense [C] Shark repellent
[B] Scorched earth [D] Poison pill
5. Following the IFRS 3 definition of a business combination, a business
combination occurs when a company acquires an equity interest in
another entity and has
[A] At least 20% ownership in the entity.
[B] More than 50% ownership in the entity.
[C]100% ownership in the entity.
[D] control over the entity, irrespective of the percentage owned
6. In a completed working paper elimination (in journal entry format)
 for a parent company and its wholly owned subsidiary on the date of
the business combination, the total of the debits generally equals the:
[A] Parent company’s total cost of its investment in the subsidiary.
[B] Carrying amount of the subsidiary’s identifiable net assets.
[C]Current fair value of the subsidiary’s identifiable net assets.
[D] Total paid-in capital of the subsidiary.
7. The traditional definition of control for a parent company–subsidiary
relationship (parent’s ownership of more than 50% of the
subsidiary’s outstanding common stock) emphasizes:
[A] Legal form.
[B] Economic substance.
[C] Both legal form and economic substance.
[D] Neither legal form nor economic substance.
8. A parent need not present consolidated financial statements if it
meets all the following conditions:
[A] It is a wholly-owned subsidiary or is a partially-owned subsidiary of
another entity and all its other owners.
[B] Its debt or equity instruments are not traded in a public market
[C] It did not file, nor is it in the process of filing, its financial statements
with a securities commission or other regulatory organization for the
purpose of issuing any class of instruments in a public market.
[D] An investor controls an investee when it is exposed, or has rights, to
variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee
[E] All of the above
9. Which of the following is true according to IFRS 10 Consolidated
Financial Statements issued by IASB?
[A] An investor controls an investee when it is exposed, or has rights,
to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee
[B] An investor has power over an investee when the investor has
existing rights that give it the current ability to direct the relevant
activities, i.e. the activities that significantly affect the investee’s returns
[C]An investor is exposed, or has rights, to variable returns from its
involvement with the investee when the investor’s returns from its
involvement have the potential to vary as a result of the investee’s
performance.
 [D] A parent shall prepare consolidated financial statements using
different accounting policies for like transactions and other events in
similar circumstances
10. In a working paper elimination (in journal entry format) for the
consolidated balance sheet of a parent company and its wholly owned
subsidiary on the date of a acquisitions , the subtotal of the debits to
the subsidiary’s stockholders’ equity accounts equals the:
[A] Current fair value of the subsidiary’s identifiable net assets.
[B] Current fair value of the subsidiary’s total net assets, including
goodwill.
[C]Balance of the parent company’s investment ledger account.
[D] Carrying amount of the subsidiary’s identifiable net assets
11. In the working paper for consolidated balance sheet prepared on the
date of the acquisition of a parent company and its wholly owned
subsidiary, whose liabilities had current fair values equal to their
carrying amounts, the total of the Eliminations column is equal to:
[A] The current fair value of the subsidiary’s identifiable net assets.
[B] The total stockholder’s equity of the subsidiary.
[C] The current fair value of the subsidiary’s total net assets, including
goodwill.
[D] An amount that is not determinable
12. In a business combination resulting in a parent company–wholly
owned subsidiary relationship, goodwill developed in the working
paper elimination is attributed:
[A] In its entirety to the subsidiary.
[B] In its entirety to the parent company.
[C]To both the parent company and the subsidiary, in the ratio of current
fair values of identifiable net assets.
[D] In its entirety to the consolidated entity.
13. On the date of the business combination of a parent company and its
partially owned subsidiary, under the computation method used in
this book, the amount assigned to minority interest in net assets of
subsidiary is based on the:
[A] Cost of the parent company’s investment in the subsidiary’s
common stock.
[B] Carrying amount of the subsidiary’s identifiable net assets.
[C]Current fair value of the subsidiary’s identifiable net assets.
[D] Current fair value of the subsidiary’s total net assets, including
goodwill
14. Under the equity method of accounting for the operating results of a
subsidiary, dividends declared by the subsidiary to the parent
company are accounted for by the parent company as:
[A] Dividend revenue on the declaration date.
[B] A reduction of the investment in subsidiary on the payment date.
[C] Dividend revenue on the payment date.
[D] A reduction of the investment in subsidiary on the declaration date
15. Under the equity method of accounting, dividends declared by the
subsidiary to the parent company are credited to the parent’s:
[A] Intercompany Dividends Receivable account.
[B] Investment in Subsidiary Common Stock account.
[C]Retained Earnings of Subsidiary account.
[D] Retained Earnings account.
16.After completion of the parent company’s equity-method journal entries for its
profitable wholly owned subsidiary’s operating results, the balance of the
parent’s Intercompany Investment Income ledger is equal to the:
[A] Subsidiary’s net income.
[B] Subsidiary’s net Income, less amortization of current fair value differences of the
subsidiary’s identifiable net assets.
[C] Subsidiary’s net income, less amortization of current fair value differences of the
subsidiary’s net assets, including goodwill.
[D] Increase in the after-closing balance of the subsidiary’s Retained Earnings ledger
account
17. If a parent company uses the equity method of accounting, in the
working paper eliminations for the second and succeeding years
following a business combination between the parent company and
its wholly owned subsidiary, the amount eliminated for the
subsidiary’s retained earnings is the balance of the subsidiary’s
Retained Earnings Ledger account:
[A] At the beginning of the year.
[B] On the date of the business combination.
[C]At the end of the year.
[D] At the beginning of the year, less the balance of the parent’s
Retained Earnings of Subsidiary account.
18. If $1.9672 is required to acquire one British pound, the amount of
pound(s) required to acquire $1 is:
[A] £0.5083 [B] £5.0834 [C] £3.8702 [D] £0.258
19. On April 30, 2005, the buying spot rate for the local currency unit
(LCU) was $0.15, the selling spot rate was $0.17, and the 30-day
forward rate was $0.19. If on that date a U.S. multinational enterprise
received a LCU100,000 draft from a foreign customer in settlement of
a purchase made by the customer on March 31, 2005, the U.S.
enterprise may convert the LCU100,000 draft to:
[A] $15,000 [C] $19,000
[B] $17,000 [D] Some other amount
20. In a completed working paper elimination (in journal entry format)
for a parent company and its wholly owned subsidiary on the date of
the business combination, the total of the debits generally equals the:
[A] Parent company’s total cost of its investment in the subsidiary.
[B] Carrying amount of the subsidiary’s identifiable net assets.
[C]Current fair value of the subsidiary’s identifiable net assets.
[D] Total paid-in capital of the subsidiary.
21. The traditional definition of control for a parent company–subsidiary
relationship (parent’s ownership of more than 50% of the
subsidiary’s outstanding common stock) emphasizes:
[A] Legal form.
[B] Economic substance.
[C] Both legal form and economic substance.
[D] Neither legal form nor economic substance.
22. A parent need not present consolidated financial statements if it
meets all the following conditions:
[A] It is a wholly-owned subsidiary or is a partially-owned subsidiary of
another entity and all its other owners.
[B] Its debt or equity instruments are not traded in a public market
[C] It did not file, nor is it in the process of filing, its financial statements
with a securities commission or other regulatory organization for the
purpose of issuing any class of instruments in a public market.
[D] An investor controls an investee when it is exposed, or has rights, to
variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee
[E] All of the above
23. Which of the following is true according to IFRS 10 Consolidated
Financial Statements issued by IASB?
[A] An investor controls an investee when it is exposed, or has rights,
to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee
[B] An investor has power over an investee when the investor has
existing rights that give it the current ability to direct the relevant
activities, i.e. the activities that significantly affect the investee’s returns
[C]An investor is exposed, or has rights, to variable returns from its
involvement with the investee when the investor’s returns from its
involvement have the potential to vary as a result of the investee’s
performance.
 [D] A parent shall prepare consolidated financial statements using
different accounting policies for like transactions and other events in
similar circumstances
24. In a working paper elimination (in journal entry format) for the
consolidated balance sheet of a parent company and its wholly owned
subsidiary on the date of a acquisitions , the subtotal of the debits to
the subsidiary’s stockholders’ equity accounts equals the:
[A] Current fair value of the subsidiary’s identifiable net assets.
[B] Current fair value of the subsidiary’s total net assets, including
goodwill.
[C]Balance of the parent company’s investment ledger account.
[D] Carrying amount of the subsidiary’s identifiable net assets

25. Under the equity method of accounting for the operating results of a
subsidiary, dividends declared by the subsidiary to the parent
company are accounted for by the parent company as:
[A] Dividend revenue on the declaration date.
[B] A reduction of the investment in subsidiary on the payment date.
[C] Dividend revenue on the payment date.
[D] A reduction of the investment in subsidiary on the declaration date
26. Under the equity method of accounting, dividends declared by the
subsidiary to the parent company are debited to the parent’s:
[A] Intercompany Dividends Receivable account.
[B] Investment in Subsidiary Common Stock account.
[C]Retained Earnings of Subsidiary account.
[D] Retained Earnings account
27. Using the acquisition method, a company acquires all of the shares of
stock of another company. In-process research and development is
present and estimated to have a $300,000 fair value. How would you
account for these costs?
[A] Always expense these costs at the acquisition date
[B] Expense these costs unless such costs represent assets with
alternative future use
[C]Recognize these costs as an intangible asset and amortize the cost over
a reasonable life
[D] Recognize these costs as an intangible asset and test for impairment
[E]These costs have no impact on the purchase
31. In accounting for a business combination as a purchase, a bargain
purchase exists when
[A] purchase price > book value.
[B] fair value of net assets > purchase price or the fair value of the
consideration.
[C]fair value of net assets < book value.
[D] fair value of net assets > book value.
[E] fair value of net assets < purchase price or the fair value of the
consideration.
32. Using the acquisition method, when a bargain purchase occurs
and the net amount of the fair values of the separately identified
assets and liabilities acquired exceed the fair value of the
consideration transferred:
[A] assets are recorded at amounts below their assessed fair values.
[B] a gain on bargain purchase is recognized at the acquisition date.
[C]a loss on bargain purchase is recognized at the acquisition date.
[D] a contingent liability is recognized.
[E] Goodwill is recognized and tested for impairment on an annual basis.
33. In preparing the consolidation worksheet for a business combination
accounted for as a purchase using the purchase method, which one of
the following is the appropriate basis for valuing fixed assets of a
wholly-owned subsidiary?
[A] fair value of the assets only.
[B] book value as shown on the books of the subsidiary.
[C]book value plus any excess of purchase price over book value of the
acquired assets and liabilities.
[D] historical cost as shown on the books of the subsidiary.
[E]current carrying value.
34. On March 31, Jumbo purchases 100% of Larz for $7,500,000 cash and
2,200,000 shares of Jumbo voting common stock (par value of $1).
Jumbo's stock had a fair value on March 31 of $40. Jumbo got
12,000,000 shares of Larz's voting common stock (par value $4)
having a fair value of $50 per share. Jumbo incurs $5,000,000 in
direct combination costs and $3,500,000 in stock issuance costs.
Using the purchase method, what is Jumbo's COST for this
acquisition?
[A] $100,500,000
 [B] $ 95,500,000
[C]$ 99,000,000
[D] $ 90,500,000
[E]$ 97,000,000
35. On September 1, Mountainview Company acquired all of the
outstanding common stock of Ward Company in a business
combination accounted for as a pooling of interests. Both companies
have a December 31 year-end and have been operating for five years.
Consolidated net income for the year ended December 31 should
include 12 months of net income for
[A] only Mountainview.
[B] only Ward.
[C]neither Mountainview nor Ward.
[D] both Mountainview and Ward.
[E]Mountainview and Ward (if Ward's net income is at least 30% of
consolidated net income).
36. Goodwill is generally defined as:
[A] Cost of the investment less the subsidiary's book value at the
beginning of the year.
[B] Cost of the investment less the subsidiary's book value at the
acquisition date.
[C]Cost of the investment less the fair value of the subsidiary's net assets
and previously unrecorded intangible assets at the beginning of the
year.
[D] Cost of the investment less the fair value of the subsidiary's net assets
and previously unrecorded intangible assets at acquisition date.
[E]Is no longer allowed under Federal Law.
37. To settle a difference of opinion regarding R.Obin's fair values, B.
Atman promises to pay an additional $100,000 to the former owners
if R. Obin's earnings exceed $500,000 during the next annual period.
B. Atman estimates a 30% probability that the $100,000 contingent
payment will be required. Assuming a discount rate of 4%, the
present value factor is .961538. Under the acquisition method, what is
the contingent liability?
[A] No contingent liability is recorded.
[B] $ 28,846
[C]$ 30,000
 [D] $ 96,154
[E]$100,000
38. The foreign exchange rate for the immediate delivery of currencies
exchanged is called the
[A] forward rate.
[B] historical rate.
[C]spot rate.
[D] market rate.
[E]swap rate.
38. On November 1 of the current year, Patriot Inc. purchased a container
of electrical components from its supplier in Japan. Patriot agreed to
pay 15,000,000 ¥ in 90 days. The exchange rate on November 1 was
$1 = 120 ¥. Patriot decided to hedge the transaction and entered into
a 90 day forward contract to purchase yen at a cost of $1 = 125 ¥. The
60 day forward rate that would take Patriot to the December 31 fiscal
year end was $1 = 127.50 ¥. On December 31, the spot rate was $1 =
118 ¥, and the 30-day forward rate was $1 = 122 ¥. What is the
balance in the forward contract account on November 1 of the current
year? (For purposes of this exercise, use a present value factor of 1.)
[A] $−0−
[B] $5,000 debit
[C]$5,000 credit
[D] $2,353 debit
[E]$7,353 credit
39. On November 1 of the current year, Patriot Inc. purchased a container
of electrical components from its supplier in Japan. Patriot agreed to
pay 15,000,000 ¥ in 90 days. The exchange rate on November 1 was
$1 = 120 ¥. Patriot decided to hedge the transaction and entered into
a 90 day forward contract to purchase yen at a cost of $1 = 125 ¥. The
60 day forward rate that would take Patriot to the December 31 fiscal
year end was $1 = 127.50 ¥. On December 31, the spot rate was $1 =
118 ¥, and the 30-day forward rate was $1 = 122 ¥. What is the
balance in the forward contract account on December 31 of the
current year? (For purposes of this exercise, use a present value
factor of 1.)
[A] $7,119 debit
 [B] $7,119 credit
[C]$2,951 debit
[D] $2,951 credit
[E]$120,000 debit
40. The price today at which a foreign currency can be purchased or sold
in the future.
[A] forward rate.
[B] historical rate.
[C]spot rate.
[D] market rate.
[E]swap rate.
41. The exchange rate at which the option will be executed if the holder
decides to exercise the option is the
[A] strike price.
[B] intrinsic value.
[C]spot rate.
[D] forward rate.
[E]option price.
42. Using a forward contract to hedge a transaction that hasn't taken
place yet, but likely WILL take place (such as receiving an order for
future delivery of goods from a customer) is
[A] Not allowed by GAAP
[B] Is called a Fair Value Hedge
[C]Is called a Cash Flow Hedge
[D] Is called a hedge of a firm commitment.
[E] Is called a hedge of a future commitment.
43. Hedges of foreign currency firm commitments are used for
[A] Sales only
[B] Purchases only
[C]Current purchases or sales
[D] Future sales or purchases
[E]None of the above
44. Which one of the following relationships between fluctuations in
exchange rates and foreign exchange gains and losses is true?
[A] For an import purchase, a gain results when foreign currency
appreciates.
 [B] For an export sale, a loss results when foreign currency
appreciates.
[C]For an export sale, a gain results when foreign currency appreciates.
[D] For an import purchase, a loss results when foreign currency
depreciates.
[E] None of the above
45. In accounting for foreign exchange currency, the United States uses
[A] One-transaction perspective that defers foreign exchange gains
and losses
[B] One-transaction perspective that accrues foreign exchange gains
and losses.
[C]Two-transaction perspective that defers foreign exchange gains and
losses
[D] Two-transaction perspective that accrues foreign exchange gains
and losses.
[E]None of the above
46.Foreign subsidiaries of U.S. parent companies that operate in highly inflationary
economies are required by GAAP to use which method for translating the
financial statements:
[A] Temporal Method, with the Translation Gain or Loss to be reported as part of
Comprehensive Income.
[B] Current Rate Method, with the Cumulative Translation Adjustment to be reported as
part of Comprehensive Income.
[C] Temporal Method, with the Translation Gain or Loss to be reported as part of Net
Income.
[D] Current Rate Method, with the Cumulative Translation Adjustment to be reported as
part of Net Income.
[E] Equity Method, with the Translation Gain or Loss to be reported as part of Non-
Controlling Interest in Subsidiary.
47. A subsidiary of Shaw Inc. has one asset (Inventory) and one liability
(Accounts Payable). The functional currency of this subsidiary is the
Euro. The inventory was acquired for 90,000 € when the exchange
rate was $1.30 = 1€. Accounts Payable, which has a balance of 50,000
€, was established when the exchange rate was $1.35 = 1 €. At year-
end, the exchange rate was $1.25 = 1 €. Which one of the following
statements is true for the consolidated financial statements?
[A] The consolidated financial statements are not affected by this
situation.
 [B] A debit translation adjustment must be reported.
[C]A credit translation adjustment must be reported.
[D] A transaction loss must be reported.
[E]A transaction gain must be reported.
48. Which one of the following translation methods has as its basic
assumption the premise that a company's net investment in a foreign
operation is exposed to foreign exchange risk?
[A] current rate method
[B] average rate method
[C]current/noncurrent method
[D] monetary/nonmonetary method
49. The primary currency of the foreign entity's operating environment is
known as the
[A] translation currency.
[B] functional currency.
[C]reporting currency.
[D] temporal currency.
[E]prime-time currency.temporal method
50.When the current exchange rate is used for translation and the foreign currency
increases in value, if the liabilities increase, the company would recognize a
[A] positive translation adjustment
[B] negative translation adjustment
[C] positive remeasurement adjustment
[D] negative remeasurement adjustment
[E] remeasurement gain
51.A U.S. company owns an entity located in Denmark that is relatively self-
contained and integrated with the local economy. The foreign company uses the
krone in its daily operations. The U. S. company has calculated a $50,000
translation adjustment related to the foreign entity. How would the company
report this adjustment in its consolidated financial statements?
[A] The parent would use the temporal method and report the translation adjustment in
its income.
[B] The parent would use the temporal method and report the translation adjustment in
its other comprehensive income.
[C] The parent would use the current rate method and report the translation
adjustment in its income.
[D] The parent would use the current rate method and report the translation
adjustment in its other comprehensive income.
[E] The parent can select the method it prefers.
52. A positive translation adjustment will occur when
[A] A net asset balance sheet exposure exists and the foreign currency
appreciates.
[B] A net asset balance sheet exposure exists and the foreign currency
depreciates.
[C]A net liability balance sheet exposure exists and the foreign currency
appreciates.
[D] A net liability balance sheet exposure exists and the foreign
currency changes
[E]A remeasurement of financial statement using the temporal method
occurs
53. The equity method of accounting need not be applied where the
investment:
[A] represents more than 20% of the voting shares of an associate;
[B] does not provide the investor with significant influence;
[C]is held exclusively with a view to its disposal within 12 months;
[D] is made by an investor who has no subsidiaries.
54. In respect to the equity method of accounting, where an investor has
no subsidiaries the investor must apply the:
[A] cost method of accounting for investments in associates;
[B] consolidated financial reporting
[C]equity method in its own accounting records;
[D] net present value method to measuring the expected cash flows from
an associate.
55. Mandy Limited acquired a 30% share in Sandy Limited for $27 000.
Mandy Limited has no other investments. At the date on which it
became an associate, Sandy Limited had the following equity items:
Share capital $50 000, Retained earnings $40 000. At the end of the
financial year following acquisition, Sandy Limited generated a profit
of $6 000. The carrying amount of the investment in Sandy Limited at
the end of the financial year is:
[A] $25 200;
[B] $27 000;
[C]$28 800;
[D] $33 000.
56. Investor Limited acquired a 25% interest in Investee Limited for $15 000.
Investor holds other equity investments but does not prepare consolidated
financial statements. Investee Limited revalued its buildings class of assets
by $50 000 during the current financial period. The balance of the
investment in associate account at the end of the current financial period
is:
[A] $12 500;
[B] $15 000;
[C]$16 250;
[D] $27 500.
57. Tea Limited acquired a 35% investment in Cup Limited for $20 000. Tea
Limited also owns two subsidiaries and prepares consolidated financial
statements. Cup Limited declared and paid a dividend of $5 000 during the
current financial year. The appropriate consolidation adjustment to record
this transaction will include the following entry:
[A] DR Investment in associate;
[B] DR Cash;
[C]DR Dividend revenue;
[D] DR Share of profit of associate.
58. Company A acquired a 30% interest in an associate, Company B, for $25
000. Company A is part of a consolidated group. In the financial period
immediately following the date on which it became an associate, Company
B revalued assets by $4 000, generated profits of $10 000 and declared a
dividend of $5 000. The balance in the investment account after equity
accounting has been applied is:
[A] $26 200;
[B] $27 700;
[C]$28 000;
[D] $29 200.
59. Where goodwill is acquired on an investment in an associate the goodwill
is:
[A] amortized across the useful life of the goodwill;
[B] written off immediately against the carrying amount of the
investment;
[C]carried as a separate asset in the accounting records of the investor;
[D] not subject to amortization.
60. When an associate declares and pays a dividend out of pre-acquisition
profits the application of the equity method results in the investor making
the following adjustment:
[A] DR Investment in associate;
[B] Cr Cash;
[C]CR Dividend revenue;
[D] No adjustment.
61. If an associate incurs losses the investor is required to:
[A] ignore the losses for the purposes of equity accounting
adjustments;
[B] recognise losses only to the point where the carrying amount is
equal to the initial investment;
[C]recognise losses to the point where the carrying amount of the
investment is zero;
[D] reclassify the investment as a current asset
62. Where an investor has discontinued the use of the equity method because
the associate has incurred losses it must disclose the:
[A] unrecognised share of current period and cumulative losses of the
associate;
[B] reason why it has discontinued the method;
[C]accounting policy it has adopted in place of the equity method;
[D] effect on the statement of changes in equity if it had continued to
use the method.
63.Investments in associates accounted for using the equity method are presented in
the statement of financial position amongst:
[A] equity;
[B] non-current liabilities;
[C] current assets;
[D] non-current assets
64.Under the cost model of accounting for an investment, changes to the carrying
amount of the investment occur if:
[A] the investee earns post-acquisition profits or losses;
[B] goodwill included in the investment is amortised;
[C] the investment is impaired;
[D] dividends are received from the investee.
65. The method of accounting that applies to an investor and associate
relationship is the:
[A] cost method;
[B] fair value method;
[C] consolidation method;
 [D] equity method
66. For the purposes of equity accounting an associate is a business entity
including:
[A] an unincorporated entity;
[B] a joint venture;
[C]a subsidiary;
[D] Venture capital organizations.
67. For the purposes of equity accounting, significant influence is
regarded as the power of an investor to:
[A] control the financial and operating policies of an associate;
[B] participate in the financial and operating policy decisions of an
investee;
[C]participate in the day-to-day management of a joint venture interest;
[D] dominate the financing decisions of an entity.
68. IAS 28 shall be applied by all entities that are investors with __________
an investee.
[A] Joint control of
[B] Significant influence over
[C]Control over
[D] A or B
[E]A or B or C
69. If an entity holds, directly or indirectly, __________ of the voting power of
the investee, it is presumed that the entity has significant influence,
unless it can be clearly demonstrated that this is not the case.
[A] 10 per cent or more
[B] 20 per cent or more
[C]25 per cent or less
[D] 50 per cent or less
70. Under which of the following circumstances does an entity lose
significant power over the investee?
[A] When it loses the power to participate in the financial and
operating policy decisions of that investee
[B] When it holds less than 10% of voting rights of the investee
[C]When its investment ceases to be an associate or a joint venture
[D] Any of the above
71.Under the equity method, on initial recognition the investment in an associate or
a joint venture is recognised __________, and the carrying amount is increased or
 decreased to recognise the investor’s share of the profit or loss of the investee
after the date of acquisition.
[A] At cost
[B] At fair value
[C] At historical cost
[D] At amortised cost
72.Which of the following measures provides the most informative reporting of the
investor’s net assets and profit or loss?
[A] The recognition of income on the basis of distributions received
[B] Application of the equity method
[C] Proportional allocation of returns
[D] A and C
73.Unless an investment, or a portion of an investment, in an associate or a joint
venture is classified as held for sale in accordance with IFRS 5 Non-current Assets
Held for Sale and Discontinued Operations, the investment, or any retained
interest in the investment __________.
[A] Not classified as held for sale, shall be impaired
[B] Not classified as held for sale, shall be classified as a non-current asset
[C] Shall also be classified as held for sale
[D] Shall be recognised at fair value through profit or loss
74.Under which of the following circumstances shall not the entity apply the equity
method?
[A] The entity’s debt or equity instruments are traded in a public market
[B] The entity did not file, nor is it in the process of filing, its financial statements with a
securities commission or other regulatory organization, for the purpose of issuing
any class of instruments in a public market
[C] The ultimate or any intermediate parent of the entity produces financial statements
available for public use that comply with IFRSs, in which subsidiaries are
consolidated or are measured at fair value through profit or loss in accordance with
IFRS 10
[D] A or B
[E] None of the above
75.When an entity has an investment in an associate, a portion of which is held
indirectly through a venture capital organisation, the entity may elect to measure
that portion of the investment in the associate at fair value through profit or loss
in accordance with IFRS 9 __________ the venture capital organisation has __________
over that portion of the investment.
[A] Only if; significant influence
[B] Only if; control
[C] Regardless of whether; significant influence
[D] Unless; control
76.Which of the following statements is true with regards to an entity that
discontinues the use of the equity method from the date when its investment
ceases to be an associate or a joint venture?
[A] If the investment becomes a subsidiary, the entity shall account for its investment in
accordance with IFRS 3 Business Combinations and IFRS 10 Consolidated Financial
Statements
[B] If the retained interest in the former associate or joint venture is a financial asset,
the entity shall measure the retained interest at historical cost
[C] The entity shall account for all amounts previously recognised in other
comprehensive income in relation to that investment on the same basis as would
have been required if the investee had directly disposed of the related assets or
liabilities
[D] A and C
[E] All of the above
77. Gains and losses resulting from ‘upstream’ and ‘downstream’
transactions involving assets that do not constitute a business, as
defined in IFRS 3 Business Combinations, between an entity and its
associate or joint venture __________.
[A] Shall be recognised in the entity’s financial statements only to the
extent of unrelated investors’ interests in the associate or joint venture
[B] Shall be recognised in the entity’s financial statements in full
[C]Shall be eliminated against the investment accounted for using the
equity method
[D] Shall not be presented as deferred gains or losses in the entity’s
consolidated statement of financial position in which investments are
accounted for using the equity method

78.Under which of the following circumstances shall the investor recognize its share
in losses incurred?
[A] When upstream transactions provide evidence of a reduction in the net
realizable value of the assets to be purchased
[B] When upstream transactions provide evidence of an impairment loss of the
assets to be purchased
[C]When downstream transactions provide evidence of a reduction in the net
realizable value of the assets to be sold or contributed
[D] When downstream transactions provide evidence of an impairment loss of
the assets to be sold or contributed
[E]A or B
79. The objective of IFRS 11 is to ________________ by entities that have an interest in joint
arrangements.
[A] Regulate accounting policy to be applied
[B] Establish principles for financial reporting
[C] Achieve uniformity in the accounting policies used
[D] Unify the accounting techniques used
[E] B or C
80.What entities shall apply IFRS 11?
[A] Only those entities that have joint control over a joint arrangement
[B] Only those entities that have significant influence over a joint arrangement
[C] Only those entities that are a party to a joint arrangement
[D] All of the above
81.A joint arrangement can be either a …
[A] Joint venture or joint subsidiary
[B] Joint operation or a joint venture
[C] Joint operation or joint entity
[D] Joint entity or joint subsidiary
82.Joint control is the contractually agreed sharing of control of an arrangement,
which exists only when decisions about the relevant activities require the
_____________ of the parties sharing control.
[A] Highest level of professionalism
[B] Unanimous consent
[C] Collective judgement
[D] Unbiased decisions
83.KL Ltd. has invested in 50% voting power of a joint venture MN Ltd. MN Ltd. has
also issued 10% cumulative preference shares to other investors worth
1000,000. During the year, MN Ltd. earned profit of 400,000. Also, MN Ltd. has not
declared any dividend on the preference shares for current year. Calculate KL
Ltd.’s share in the net profit of MN Ltd. for the year
[A] 300000
[B] 150000
[C] 100000
[D] 180000
84. Which of the following statements is not correct?

[A] IAS 21 applies to hedge accounting for foreign currency items,

including the hedging of a net investment in a foreign operation
[B] IAS 21 applies to the presentation of an entity’s financial
statements in a foreign currency and sets out requirements for the
resulting financial statements to be described as complying with IFRSs
 [C]IAS 21 applies when an entity translates amounts relating to derivatives
from its functional currency to its presentation currency
[D] All of the above
85. Which of the following areas does IFRS 3 apply to?
[A] The accounting for the formation of a joint arrangement in the financial statements
of the joint arrangement itself
[B] The acquisition of an asset or a group of assets that does not constitute a business
[C] A combination of entities or businesses under common control
[D] Accounting for business combinations
86. The acquirer shall measure the identifiable assets acquired and the
liabilities assumed at their:
[A] Acquisition-date fair values
[B] Acquisition-date historical cost
[C]Reporting-date net book value
[D] Reporting-date present value
87. The cost of acquisition in a business combination is measured as the fair
value of the:
[A] Consideration given;
[B] Costs directly attributable to the combination;
[C]Consideration received;
[D] Consideration given plus directly attributable costs.
88. A parent need not present consolidated financial statements if it meets all
the following conditions except
[A] It is a wholly-owned subsidiary or is a partially-owned subsidiary
of another entity and all its other owners.
[B] Its debt or equity instruments are not traded in a public market
[C]It did not file, nor is it in the process of filing, its financial statements
with a securities commission or other regulatory organization for the
purpose of issuing any class of instruments in a public market.
[D] An investor controls an investee when it is exposed, or has rights,
to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee
89. Which of the following is true according to IFRS 10 Consolidated Financial
Statements issued by IASB?
[A] An investor controls an investee when it is exposed, or has rights,
to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee
 [B] An investor has power over an investee when the investor has
existing rights that give it the current ability to direct the relevant
activities, i.e. the activities that significantly affect the investee’s returns
[C]An investor is exposed, or has rights, to variable returns from its
involvement with the investee when the investor’s returns from its
involvement have the potential to vary as a result of the investee’s
performance.
[D] A parent shall prepare consolidated financial statements using
different accounting policies for like transactions and other events in
similar circumstances
90. Which of the following statements is not correct?
[A] IAS 21 applies to hedge accounting for foreign currency items,
including the hedging of a net investment in a foreign operation
[B] IAS 21 applies to the presentation of an entity’s financial
statements in a foreign currency and sets out requirements for the
resulting financial statements to be described as complying with IFRSs
[C]IAS 21 applies when an entity translates amounts relating to derivatives
from its functional currency to its presentation currency
[D] In IAS 21, the principal issues are which exchange rate(s) to use
and how to report the effects of changes in exchange rates in the
financial statements
91. Which of the following terms are defined by the statement: “The currency
of the primary economic environment in which the entity operates”?
[A] Local currency [C]Functional currency
[B] Operational currency [D] Presentation currency
92. Exchange rate is the ratio of exchange for __________.
[A] two currencies
[B] functional currency to local currency
[C]local currency to presentation currency
[D] operational currency to functional currency
93. On July 1, 2002, Occidental Corporation purchased merchandise on 30-day
open account from a New Zealand supplier at an invoice cost of 100,000
New Zealand dollars (NZ$). On that date, spot exchange rates were: buying
—NZ$1 = $0.777; selling—NZ$1 = $0.7785. On July 31, 2002, Occidental
acquired a draft for NZ$100,000 for $77,600. In the journal entry to record
 the acquisition of the NZ$100,00 draft, Occidental recognizes a foreign
currency:
[A] Transaction loss of $100
[B] Transaction loss of $250
[C]Transaction gain of $250
[D] Transaction gain of $23,400
94. On 1 January 2008, A acquired a 60% interest in B for $80m. A already held
a 10% interest which had been acquired for $12m but which was fair
valued at $15m at 1 January 2008. The fair value of the non-controlling
interest at 1 January 2008 was $47m and the fair value of the identifiable
net assets of B was $130m. A gain relating to the revaluation of the original
equity interest would be recorded as follows -
[A] $38m [C]$3m
[B] $35m [D] $12m
95. What is meant by full goodwill?
[A] The recognition of the goodwill which relates to the parent companies interest
[B] A refund
[C] The recognition of the goodwill which relates to the non-controlling interest and the
controlling interest
[D] A bargain purchase
96. A has acquired a subsidiary on 1 January 2008. The fair value of the net
assets of the subsidiary acquired were $16m. A acquired 60% of the shares
of the subsidiary $11m. The non-controlling interest was fair valued at
$8m. Goodwill based on the partial goodwill method under IFRS 3
(revised) would be -
[A] $1.4m
[B] $5m
[C]$8m
[D] $3m
97. A company has finalized the deferred tax calculation on 1 October 2008 in
relation to its acquisition of a subsidiary on 1 January 2008. The
adjustment required will -
[A] Be adjusted through equity
[B] Be adjusted through income
[C]Be ignored as it is too long since the acquisition
[D] Affect the calculation of goodwill
98. On 1 January 2008, A acquired a 60% interest in B for $80m .A already held
a 10 percent interest which had been acquired for $12m but which was fair
valued at $15m at 1 January 2008. The fair value of the non-controlling
interest at 1 January 2008 was $47m and the fair value of the identifiable
net assets of B was $130m. The goodwill would be as follows using the full
goodwill method -
[A] $38m [C]$12m
[B] $1m [D] $35m
99. From what date could IFRS 3 (revised) affect the financial statements?
[A] It can be applied early but not before accounting periods
beginning on or after 30 June 2007
[B] It must be applied to the first financial statements beginning after
1 July 2008
[C]Immediately
[D] It must be applied from 1 January 2009
100. Select the correct statement with regards to intragroup balances and transactions
during consolidation:
[A] Intragroup balances and transactions must be eliminated
[B] Intragroup balances and transactions must be eliminated to the extent of non-
controlling interest
[C] Intragroup balances and transactions must be eliminated in proportion to the
percentage of effective ownership
[D] Intragroup balances and transactions do not have to be eliminated