eval(ez_write_tag([[580,400],'xplaind_com-medrectangle-3','ezslot_2',105,'0','0'])); The following entry is needed in the consolidation worksheet to eliminate the investment in Company B account, adjust non-current assets upwards by $5 million and eliminate company B equity accounts: The above worksheet is created at the acquisition date. (5) What is an associate and how does equity accounting work? What Problems does Accounting Diversity Cause? Download PDF. PAPER P2 CORPORATE REPORTING ) QUESTIONS AND ANSWERS UPDATED FOR REVISED IFRS 3 . This is because the consolidated statement of profit or loss needs to show revenue and costs of sales which reflects group performance with external, non-group, entities. provision of essential technical information. Answer The Paper FA syllabus is limited to the definition and identification of an Associate and describing the principle of equity accounting only. Power may be evidenced by all or some of the following: A typical OT may describe a number of different investments and you would need to decide if they are subsidiaries – ie if control exists. You learning providers question banks and revision material will also provide further practice. Green Co owns the following investments in other companies: Green Co also has appointed five of the seven directors of Black Co. University. In the consolidated statement of financial position, the investment in the associate is shown as a single figure in non-current assets. A $104,700 Purpose. From the question, we can see that Pink Co has control over Scarlett Co. Consolidated financial statements provide important information by summarising: The total assets and liabilities under the control of the parent. Consolidated financial statements are financial statements of a group in which assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity. When these balances are eliminated, the consolidated figures become: Receivables     ($50,000 + $30,000 – $4,600) = $75,400 An associate is defined by IAS 28, Investments in Associates and Joint Ventures as ‘an entity over which the investor has significant influence’. You should ensure you have looked at the specimen paper (the full exam amd the additional MTQs) for practice of the fuller consolidation exam questions. Q.1 On 1 April 2011, Pyramid acquired 80% of Squares equity shares by means of an immediate share exchange and a cash payment of 88 cents per acquired share, deferred until 1 April 2012. The diversity in accounting practices across countries causes problems that can be quite seri­ous for some parties. Note: Red Co has only acquired 80% of Blue Co’s shares, so consideration transferred is 80% x 40,000 = 32,000 x $3.50 = $112,000. Course. It does not attempt to cover every technical aspect of consolidation, but to give candidates the tools they need to prepare for the style and level of testing, they can expect to see in this paper. (b) Prepare the statement of changes in equity for Downing Co for the year ended 31 March 2016. As Green Co only has 25% of the equity shares, they do not have control and, therefore, Amber Co is not a subsidiary. The concise answer below would have scored full marks. Brijesh Kumar. Exam Financial Statement Analysis, Questions and Answers rn. When answering OTs and MTQs, remember to: Written by a member of the FA examining team, Virtual classroom support for learning partners, Support for students and affiliates in Singapore, Preparing simple consolidated financial statements, Less: fair value of net assets at acquisition, the power over more than 50% of the voting rights by virtue of agreement with other investors, the power to govern the financial and operating policies of the entity under statute or an agreement, the power to appoint or remove the majority of the members of the board of directors, or. iii. (c) Prepare the statement of financial position of Downing Co as at 31 March 2016. This is because, although we have used OTs to demonstrate how the consolidation principles could be examined, they could also be assessed using the MTQs in part B of the exam. You should look at the specimen paper and extra MTQs available on the ACCA website. FA Chapter 26 Questions – Interpretation of Financial Statements. Universiteit van Amsterdam. Star owns Sun; therefore, consolidated financial statements should be prepared for Star but not Sun. Consolidated statement of financial position Chapter 24. Corporate Financial Reporting and Analysis (ACCT2542) Uploaded by. The following is a very basic acquisition-date consolidated worksheet: In this particular case, consideration transferred is $50 million and the fair value of net assets of Company B is $45 million (book value of net assets of $40 million plus $5 million fair value upward adjustment to non-current assets). Note: Answer A is incorrect, as although it correctly cancels the intra-group sale of $5,000, it incorrectly adds the $500 adjustment for unrealised profit to the revenue figure ($79,300 + $29,900 – $5,000 + $500 = $104,700). More interview questions and answers. Answer In the consolidated statement of profit or loss we must always consider two steps: In this question, $5,000 of sales have been made from Purple Co selling to Silver Co. If we consider each component in turn, the first thing to identify is how much the parent company has paid to acquire control over the subsidiary. However, the intra-group balances at the year end need to be eliminated, as the consolidated accounts need to show the group as a single economic entity. Why Do Consolidated Financial Statements Matter? One problem relates to the preparation of consolidated financial state­ments by companies with foreign operations. Apply the consolidation procedure (IFRS 10.19-.24 and IFRS 10.B86-.B96) including: 3.1 Elimination of the parent’s investment in the subsidiary; Statement (1): Although a 30% holding appears to fall within the 20–50% range, it is a 30% holding in non-voting preference share capital. 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