Chapter 16 - Multiple choice quiz

The requirement to adjust for the full effects of intragroup transactions is consistent with the:

A.	parent concept of consolidation;

B.	entity concept of consolidation;

C.	proprietorship concept of consolidation;

D.	partial ownership concept of consolidation.

X Company Limited has equipment with a carrying amount of $10 000 and a tax base of $7 000. The company tax rate is 30%. On consolidation an adjustment is made reducing the carrying amount of the asset to $9 000. The consolidation adjustment entries dealing with this item include:

A.	DR Deferred tax liability $300;

B.	DR Deferred tax liability $600;

C.	CR Deferred tax liability $300;

D.	CR Deferred tax laibility$600.

The test for whether or not a transaction is realised is the presence of:

A.	profit in the transaction;

B.	an operating loss incurred by one of the parties to the transaction;

C.	only entities within the group as parties to the transaction

D.	an external party in the transaction.

A consolidation adjustment entry made to eliminate the intragroup sales of inventory at a profit would take the following form:

A.	DR Cost of Sales, CR Sales, CR Inventory;

B.	DR Sales, CR Cost of Sales, CR Inventory;

C.	DR Cash, DR Cost of Sales, CR Inventory;

D.	DR Inventory, CR Sales, CR Cash.

Winter Limited sold goods to its parent entity at a profit of $5 000. The goods had originally cost Winter Limited $20 000. The consolidation adjustment entry to eliminate this transaction would include the following item:

A.	CR Cost of sales $5 000;

B.	CR Cost of sales $15 000;

C.	CR Cost of sales $20 000;

D.	CR Cost of sales $25 000.

Jameson purchased goods from its subsidiary for $10 000. The goods cost the subsidiary $6 000. The company rate of tax is 30%. Which of the following consolidation adjustment entries is correct?

A.	DR Tax expense $1 200, CR Deferred tax liability $1 200;

B.	DR Tax expense $1 200, CR Deferred tax asset $1 200;

C.	DR Deferred tax asset $1 200, CR Tax expense $1 200;

D.	DR Deferred tax liability $1 200, CR Tax expense $1 200.

A subsidiary sold inventory to a parent entity for $20 000. The inventory originally cost the subsidiary $16 000. At balance sheet date the parent had sold 50% of the inventory to an external party. The consolidation adjustment entry (excluding tax effects) will eliminate unrealised profit amounting to:

$4 000;

$2 000;

$8 000;

$0.

A subsidiary sold inventory to a parent entity for $10 000. The inventory originally cost the subsidiary $6 000. At balance sheet date the parent had sold 50% of the inventory to an external party. The company tax rate is 30%. The deferred tax item that is recognised on consolidation is:

A.	CR Deferred tax liability $1 200;

B.	CR Deferred tax liability $600;

C.	DR Deferred Tax Asset $1 200;

D.	DR Deferred tax asset $600.

A subsidiary sold inventory to its parent entity in year 1 at a profit of $5 000. At balance sheet date the parent had not sold the inventory. The company tax rate is 30%. The year 1 consolidation worksheet will contain the following adjustment entry for inventory:

A.	DR Inventory $5 000;

B.	DR Inventory $ 3 500;

C.	CR Inventory $5 000;

D.	CR Inventory $3 500.

10.

Unrealised profit in the opening inventory of a financial period is adjusted in the consolidation worksheet by:

A.	reducing the amount of retained earnings;

B.	increasing the amount of retained earnings;

C.	reducing the amount of inventory;

D.	increasing the amount of inventory.

11.

One entity within a group sold a depreciable non-current asset to another entity within the same group for $28 000. The asset originally cost $30 000 and at the date of sale accumulated depreciation was $5 000. The amount of the gain on sale to be eliminated was:

$5 000;

$2 000;

$3 000;

$28 000.

12.

Equipment costing $10 000 was sold by one entity within a group to another at a profit of $4 000. Accumulated depreciation at date of sale was $3 000. The consolidation entry will contain the following adjustment to the amount of the Equipment:

A.	Increase of $1 000;

B.	Reduction of $1 000;

C.	Increase of $4 000;

D.	Reduction of $3 000.

13.

When an entity sells a non-current asset at a profit to another entity within the same group the following adjustment is necessary on consolidation:

A.	DR Asset, CR Cash;

B.	CR Asset, DR Cash;

C.	DR Gain on sale, CR Asset;

D.	CR Gain on sale, DR Asset;

14.

If an entity sells a non-current asset at a profit to another entity within the same group the following consolidation adjustment is necessary to reflect the tax effect:

A.	DR Deferred tax asset;

B.	DR Deferred tax liability;

C.	DR Tax expense;

D.	DR Retained earnings.

15.

Which if the following items is an example of an intragroup service?

A.	A subsidiary sells inventory to its parent entity;

B.	An intragroup transfer of non-current assets results in an unrealised profit;

C.	One entity in a group acquires a depreciable asset from another entity in the same group.

D.	One entity in a group leases equipment to another entity in the group.

16.

Dividends that are declared and paid from profits earned after acquisition date are referred to as:

A.	Post-acquisition dividends;

B.	Pre-acquisition dividends;

C.	Interim dividends;

D.	Final dividends.

17.

When a subsidiary declares a final dividend payable to a parent which has a 100% interest in the subsidiary the parent recognised a dividend receivable and the subsidiary recognises a dividend payable. In addition to the elimination of these two items on consolidation, the following items must also be eliminated:

A.	Dividend declared and Retained earnings;

B.	Dividend declared and Dividend revenue;

C.	Dividend revenue and Cash;

D.	Dividend declared and Cash.

18.

A subsidiary entity paid an interim dividend during a financial year. The subsidiary was 100% owned by its parent entity. On consolidation the adjustment necessary to deal with the interim dividend will result in:

A.	a decrease in cash paid by the group;

B.	a decrease in dividends receivable shown by the group;

C.	a decrease in the amount shown as group dividend revenue;

D.	a decrease in retained earnings shown by the group.

19.

A parent entity made an advance of $50 000 to its subsidiary. The parent charges interest of $3 000 on this advance. The consolidation adjustment to eliminate the advance is:

A.	DR Interest revenue $53 000 CR Interest expense $53 000;

B.	DR Interest expense $53 000 CR Interest revenue $53 000;

C.	DR Advance to subsidiary $50 000 CR Advance from parent $50 000;

D.	DR Advance from parent $50 000 CR Advance to subsidiary $50 000.

20.

A consolidation worksheet adjustment to eliminate the effect of interest revenue and interest expense relating to intragroup advances has the following tax effect:

A.	No tax effect;

B.	Increase in deferred tax asset;

C.	Increase in deferred tax liability;

D.	Decrease in income tax expense.

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