5. CPA Financial Accounting and Reporting Mod 5

During the last three years Harvert Co. has held 400 000 ordinary shares in Jamee Co. The issued share capital of Jamee Co. is one million shares totalling $500 000. The finance director of Harvert Co. is a director of Jamee Co. How should the investment in Jamee Co. be treated in the consolidated financial statements of Harvert Co.?

• As a subsidiary
• As an associate
• As a current asset investment
• As a non-current asset investment

A owns 51 per cent of the voting shares in B and 100 per cent of the voting shares in D. B owns 25 per cent of the voting shares in C and has board representation in that company. All holdings have been held for a number of years. Which of the following statements is correct?

• B, C and D are subsidiaries of A
• B and D are subsidiaries of A while C is a subsidiary of B
• B and D are subsidiaries of A while C is an associate of B
• is a subsidiary of A while B and C are investments of A

3 Which of the following is a valid reason for excluding a 75 per cent owned company from consolidation under current International Financial Reporting Standards?

• The company operates in a hyperinflationary environment.
• A formally documented decision has been made by the directors to wind down the activities of the ompany
• The activities of the company are dissimilar from those of the rest of the group so that it would be confusing to include it in the consolidation.
• The company operates in a country where the government has recently passed a law to obtain

Which of the following provide evidence of a parent-subsidiary relationship? I. The parent has representation on the board of directors. II. The parent has power to direct the operating activities of the entity by statute. III. The parent has the power to remove a majority of members of the board of directors. IV. The parent has power over more than 50 per cent of the voting rights through agreement with other investors.

• IV only
• I and IV only
• II, III and IV only
• I, II, III and IV

During the last financial year, Orius Co. acquired 44 per cent of the issued share capital of Eerus Co. Under the terms of the acquisition, the finance director of Orius was appointed to the board of directors of Eerus. Which of the following correctly describes how Orius should account for its interest in Eerus in the consolidated financial statements?

• As a subsidiary, using equity accounting
• As an associate, using equity accounting
• As a subsidiary, using consolidation accounting
• As an associate, using consolidation accounting

Which of the following provides evidence of a situation where the investee should be accounted for using the equity method?

• A shareholding of 18 per cent in the investee
• Provision of operational personnel by the parent to the investee
• Provision of essential technical information by the parent to the investee
• The parent has the power to govern the financial policies of the investee by agreement

Where a subsidiary does not prepare accounts to the same date as the parent company, which of the following is correct?

• Additional financial statements must be prepared to the group reporting date by the subsidiary.
• The subsidiary's accounts may be used for the consolidation provided that the gap between the reporting dates is three months or less.
• The subsidiary's accounts may be used for the consolidation provided that they are prepared to a date within three months after the end of the group reporting period.
• The subsidiary's accounts may be used for the consolidation provided that they are prepared to a date within three months before the end of the group reporting period.

Which of the following statements are correct? I. Intra-group transactions must be eliminated on consolidation. II. Where a group comprises a parent company and an investee over which the parent has significant influence, consolidated accounts must be prepared. III. A holding of 10 per cent of ordinary voting shares in another company must be accounted for in accordance with IAS 28 Investments in Associates and Joint Ventures. IV. Where a subsidiary does not adopt the same accounting policies as its parent company, adjustments must be made to bring its accounting policies into line prior to consolidation.

• I and II only
• I and IV only
• III and IV only
• I, II, III and IV

Major Co, which makes up its accounts to 31 December, has an 80 per cent owned subsidiary Minor Co. Minor Co. sells goods to Major Co. at a mark-up on cost of 33.3 per cent. At 31 December 20X8, Major had $12 000 of such goods in its inventory and at 31 December 20X9 had $15 000 of such goods in its inventory. What is the amount by which the consolidated profit attributable to Major Co.'s shareholders should be adjusted in respect of the above? Ignore taxation

• $600 debit
• $750 credit
• $800 credit
• $1000 debit

Strachey owns 75 per cent of the share capital in Bell. At 31 July 20X2, the inventory of Strachey was valued at $420 000 and included goods costing $60 000 that it had purchased from Bell at cost plus 20 per cent. At 31 July 20X2, inventories were valued at $445 000 in the consolidated statement of financial position of the Strachey group. At 31 July 20X2, what is the inventory figure in the statement of financial position of Bell?

• $13 000
• $15 000
• $35 000
• $37 000