Book Title; Author

Chapter 14 - Multiple choice quiz


1.
A single set of financial statements that combines the separate sets of financial statements of a parent and its subsidiaries is known as:
A.
equity financial statements;
B.
condensed financial statements;
C.
consolidated financial statements;
D.
interim financial statements.


2.
The notional entity purportedly represented by a set of consolidated financial statements is the:
A.
dual-listed entity;
B.
economic entity;
C.
parent entity;
D.
subsidiary entity.


3.
The key criterion for the consolidation of the separate financial statements of entities is:
A.
substance over form;
B.
the existence of contracts for the supply of goods between the entities;
C.
capacity of the accounting systems to facilitate the necessary combination process;
D.
control.


4.
Lucerne Limited acquired 70% of the shares of Hayfields Limited directly from the owners of those shares. The shares were purchased on the market for $400 000 in total. Hayfields Limited must:
A.
recognise the inflow of cash of $400 000 and an increase in issued capital of $400 000;
B.
recognise an investment of $400 000 and an increase in equity of $400 000;
C.
de-recognise share capital amounting to $400 000;
D.
not make an accounting entry as the transaction is between Lucerne Limited and the individual shareholders of Hayfields Limited.


5.
When one entity controls the business operations of another entity, the business combination results in the following type of relationship:
A.
parent-subsidiary;
B.
partnership;
C.
a merger;
D.
dual-listed.


6.
For the purposes of consolidated financial reporting, a group is:
A.
an entity that has no subsidiaries;
B.
a parent entity and all its subsidiaries;
C.
an entity that has one or more subsidiaries;
D.
a subsidiary entity of another entity.


7.
The process of preparing the combined financial statements of a group of entities is known as:
A.
accrual accounting;
B.
condensation;
C.
accumulation;
D.
consolidation.


8.
The method adopted in combining the separate sets of financial statements of entities in a group to form a set of consolidated financial statements is:
A.
set-off all assets and liabilities and recognise a single net investment;
B.
line-by-line recognition of the elements of financial statements;
C.
combine the cash balances of the separate entities into one-line and aggregate the remaining net assets into one item;
D.
combine all assets and liabilities into one net assets item and combine all profits and losses into one profit or loss item.


9.
A group of entities comprised of All Limited, Night Limited and Long Limited have the following cash balances: All Limited $2 000, Night Limited $5 000, Long Limited $10 000. All Limited is the parent entity. The consolidated financial statements show the following amount as the consolidated cash balance:
A.
$2 000;
B.
$7 000.
C.
$15 000;
D.
$17 000.


10.
The process of consolidation involves:
A.
balance date adjusting journal entries to the ledger accounts of the subsidiaries;
B.
balance date adjusting entries to the ledger accounts of the parent entity;
C.
no adjustments to the individual ledger accounts of entities in the group;
D.
accruals directly to the balance of the retained earnings account of the parent entity.


11.
A full set of consolidated financial statements comprises a consolidated:
I
Statement of financial position
II
Statement of comprehensive income
III
Statement of changes in equity
IV
Statement of cash flows
V
Condensed interim statement
 
A.
I, II and IV only;
B.
I, II, III and IV only;
C.
III, and IV only;
D.
IV and V only.


12.
If consolidated financial statements are required to be prepared:
A.
they are additional to the separate financial statements of the entities in the group;
B.
there is no need to prepare separate financial statements for the entities in the group;
C.
the need to prepare separate financial statements for the parent entity is redundant;
D.
it is not necessary to prepare separate financial statements for the subsidiary entities of the group.


13.
A subsidiary is an entity that:
A.
controls the parent entity in a group of entities;
B.
exercises control over a parent entity
C.
has the power to control a parent entity;
D.
is controlled by a parent entity.


14.
Control is the power to govern the:
A.
operating, investing and financing cash flows of another entity;
B.
financial and operating policies of an entity so as to benefit from that entity's activities;
C.
market prices of another entity's principal goods and/or services;
D.
share price of another entity.


15.
When deciding whether or not control exists over one entity by another entity:
A.
the controlling entity must have exercised its power to control;
B.
it is sufficient that the controlling entity has the capacity to control;
C.
the controlling entity must be actively involved in governing the operations of the other entity;
D.
it is necessary that the controlling entity has exerted its control over the financing policies of the other entity.


16.
In a situation where a controlling entity has delegated control to another entity, the parent is presumed to be:
A.
the delegated party who is actively exercising control;
B.
both the delegating party and the party to whom control has been delegated;
C.
the first entity who delegated the control;
D.
neither entity as actual control has been lost;


17.
Control is automatically presumed to exist where the parent either directly or indirectly through subsidiaries owns:
A.
more than 25% but less than 50% of the voting power of an entity;
B.
more than 10% but less than25% of the voting power of an entity;
C.
not more than 49% of the voting power of an entity;
D.
more than 50% of the voting power of an entity.


18.
At balance date Company A has 40% of the voting rights in Company B. In addition Company A hold potential voting rights in Company B amounting to 6% that are currently exercisable, and a further 9% of voting rights in Company B that can be exercised in two years time. Which of the following statements is correct? Consolidated financial statements:
A.
must be prepared for Company A and B;
B.
need not be prepared for Company A and B;
C.
must be prepared as Company A controls Company B at balance date;
D.
must be prepared as Company A has more than half of the voting rights in Company B at balance date.


19.
Unicorn Trustees has a fiduciary relationship with Amble Limited enabling it to direct certain activities of Amble Limited. As a result of this relationship:
A.
Unicorn Trustees is regarded as a parent entity of Amble Limited;
B.
Amble Limited is regarded as a subsidiary of Unicorn Trustees;
C.
a parent-subsidiary relationship is not regarded as existing between these two parties;
D.
a parent-subsidiary relationship is regarded as existing between these two parties as Unicorn is able direct the activities of Amble Limited.


20.
In which of the following situations is an entity not required to prepare consolidated financial statements:
A.
the entity prepares separate financial statements that comply with IFRS
B.
the entity is a partly owned subsidiary of another entity and the other owners have consented to the non-participation
C.
where it is likely that there are external users dependant on the information
D.
the parent of the entity prepares consolidated financial statements available for public use.


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