9/5 F7 June 2025

Which TWO of the following situations are unlikely to represent control over an investee? 

A Owning 55% and being able to elect 4 of the 7 directors 

B Owning 51%, but the constitution requires that decisions need the unanimous consent of shareholders

C Having currently exercisable options which would take the shareholding in the investee to 55% 

D Owning 40% of the shares but having majority of voting rights within the investee 

E Owning 35% of the ordinary shares and 80% of the preference shares of the investee

• A

• B

• C

• D

• E

Answer explanation

The correct answer is B,E

The fact that unanimous consent is required would suggest that there is no control over the investee. Preference shares carry no voting rights and therefore are excluded when considering the control held over an investee

Mullared Co acquired 90% of Brussy Co's 3 million $1 ordinary (equity) shares on 1 March 20X4. Goodwill on acquisition was calculated as $10.2m. Non-controlling interests were measured at fair value at the date of acquisition. On 1 June 20X6, Mullared Co disposed of its entire shareholding in Brussy Co for a consideration of $46.5m. Goodwill had not previously been impaired. On 1 June 20X6, Brussy Co had retained earnings of $29.7m and the non-controlling interests in Brussy Co were $8.4m. What is the profit on disposal to be used in the preparation of the consolidated financial statements for the year ended 31 December 20X6? 

• $3.6m

• $12m

• $13.8m

• $22.2m

Answer explanation

• $0

• $2m

• $2.4m

• $6m

Answer explanation

The correct answer is C. 

The amortisation charged to the statement of profit or loss, based on sales units, is $2.4m ([144,000 units ÷ 360,000 units] x $6m).

Kallott Co’s issued share capital has remained at 20 million ordinary (equity) shares for many years. On 1 March 20X7, it made a one-for-four issue of bonus shares. The profit attributable to the ordinary shareholders for the year ended 31 May 20X7 was $36m and, for the year ended 31 May 20X6, was $27m. What basic earnings per share amounts will be reported for the year ended 31 May 20X7? 

• $1.44 (20X6: $1.35)

• $1.69 (20X6: $1.35)

• $1.44 (20X6: $1.08)

• $1.69 (20X6: $1.08)

Answer explanation

The correct answer is C. 

The bonus factor is applied to the weighted average number of shares for the current year but also to the prior year’s weighted average number of shares (both 20 million shares). 

The weighted average number of ordinary shares, therefore, for the current year and the restated prior year is 25 million shares ([5 shares after bonus ÷ 4 shares before bonus] x 20 million shares). 

The basic EPS for 20X7 is $1.44 per share ($36m ÷ 25 million shares) and, for 20X6 (restated), is $1.08 per share ($27m ÷ 25 million shares).

In accordance with IAS 12 Income Taxes, which of the following are true

A. Deferred tax takes account of temporary differences

B. Deferred tax liabilities are discounted to present value and the discount is unwound over time

C. A revaluation of land will have no impact on the deferred tax liability 

• A

• B

• C

Answer explanation

The correct answer is A. 

IAS 12 specifically does not permit deferred tax liabilities to be discounted and unwound over time. 

The revaluation increase on land means that the carrying amount of land is now higher than previously reported. Theoretically, the future recovery (i.e., eventual sale) of the carrying amount will result in a taxable flow of economic benefits to the entity and the amount that will be taxable. A revaluation increase, therefore, creates (or increases) a deferred tax liability.