Exam prep

Question 1

How do you determine control of a subsidiary?

Answer 1

The parent must have all of the following:

• Power over the investee
• Exposure to or rights to variable returns from its involvement with the investee
• Ability to affect those returns through its power over the investee

Question 2

How do you determine significant influence over a subsidiary?

Answer 2

Presumed if 20% of more voting power is achieved. However, can be evidenced in other ways, eg:

• Representation on the board
• Participation in policy making
• Material transactions between the two parties

Question 3

What are the different types of control for a parent and subsidiary?

Answer 3

Control
Significant Influence
Joint Control

Question 4

When may a company be exempt from preparing group accounts?

Answer 4

If all of the following are true:

• If it is a subsidiary or partially owned subsidiary and its owners do not object to the parent not presenting consolidated statements
• Not publically traded (or in process of being traded)
• The ultimate owner publishes consolidated accounts that comply with IFRS

Question 5

What is done when a subsidiary has a different reporting date from the parent?

Answer 5

• they may prepare additional statements to the reporting date of the group
• if this is not possible, their accounts may still be used for consolidation if the gap is less than 3 months

Question 6

What is the protocol for adjustments to provisional fair values of a subsidiaries net assets?

Answer 6

• if the adjustment is within the measurement period (<12 mnths from acquisition), an adjustment is made retrospectively and goodwill is recalculated
• if not within the measurement period, they are treated as a change in accounting estimate and adjusted for prospectively

Question 7

Which share price date is used when valuing deferred share consideration?

Answer 7

Date of acquisition

Question 8

What is a joint arrangement and what are the two main types?

Answer 8

Where two or more parties have joint control

• Joint Operations (no separate entity, parties have rights to assets and obligations for liabilities)
• Joint Ventures (separate legal entity)

Question 9

What are the characteristics of an intangible asset?

Answer 9

• Has no physical substance
• It is identifiable
• Probable economic benefit flowing to the entity as a result and cost can be measured reliably

Question 10

How are intangibles amortised/impaired?

Answer 10

• If there is a UEL, amortise
• If there is no UEL, perform impairment review each year
• If it is being amortised, impairment reviews should only be conducted if there is some indication of impairment

Question 11

When should development costs be capitalised?

Answer 11

Profit made on project
Intention to use/sell product
Resources available to complete project
Ability to use/sell the product
Technically feasible
Expenditure is identifiable

Question 12

What are the two types of events after the reporting period?

Answer 12

• Adjusting events - evidence of conditions which existed at the reporting date
• Non-adjusting events

Question 13

When should a provision be recognised?

Answer 13

• An entity has a present obligation arising from a past event
• It is probable that there will be an outflow of economic benefit
• A reasonable estimate can be made of the amount

Question 14

What is a contingent liability and how should it be disclosed?

Answer 14

• It is a possible obligation of a present obligation that is not probable or cannot be measured reliably
• It should be disclosed in the statements unless the outflow of benefits is deemed remote

Question 15

What changes in use may mean an investment property ceases to be recognised as such?

Answer 15

• Commencement of owner occupation
• Commencement of development with a view to resale
• Development with a view to continue letting