Consolidated Financial Statements

Introduction and context

A group of companies is economically capable of operating as one reporting entity even though it consists of legally separate companies. The parent company may control subsidiaries, share decision-making with another investor in a joint arrangement, or exercise significant influence over an associate. Separate financial statements show the legal relationships of individual entities; consolidated financial statements (CFS) show the financial position, performance and cash flows of the group as a single economic entity.

Consolidation is therefore not simply the addition of the parent’s and subsidiaries’ ledger balances. It requires the elimination of the effects of transactions within the group, measurement of acquired assets and liabilities at appropriate values, recognition of non-controlling interests (NCI), and consistent accounting policies and reporting dates. The principal international sources are IFRS 10 Consolidated Financial Statements, IFRS 3 Business Combinations, IAS 28 Investments in Associates and Joint Ventures, IFRS 11 Joint Arrangements, IAS 21 The Effects of Changes in Foreign Exchange Rates, and IAS 27 Separate Financial Statements.

Learning objectives

By the end of this chapter, the reader should be able to:

• explain control and determine when consolidation is required;
• prepare a consolidation worksheet and consolidated statement of financial position and profit or loss;
• account for goodwill, fair-value adjustments and NCI;
• eliminate intragroup balances, sales, dividends, interest and unrealised profit;
• apply the equity method to associates and joint ventures;
• distinguish joint operations from joint ventures;
• translate foreign operations into the group presentation currency;
• account for changes in ownership and loss of control; and
• evaluate governance, judgement and technology issues in group reporting.

1. The reporting-entity concept

1.1 Control as the basis of consolidation

Under IFRS 10, an investor controls an investee when all three conditions exist:

1. Power over the investee—present rights give the investor the current ability to direct relevant activities.
2. Exposure, or rights, to variable returns from involvement with the investee.
3. Ability to use power to affect those returns.

Legal ownership of more than 50% of voting shares is strong evidence of control, but it is not conclusive. Control can exist with less than 50% ownership where the investor has widely dispersed other shareholders, contractual rights, potential voting rights that are substantive, or de facto power. Conversely, holding a majority of votes may not confer control if another party has substantive rights that direct relevant activities.

Relevant activities may include decisions about operating strategy, capital expenditure, financing, appointment of management, or the acquisition and disposal of significant assets. The assessment is made at the reporting date and must be reassessed when facts and circumstances change.

A parent consolidates every subsidiary from the date it obtains control until the date control ceases. The parent does not exclude a subsidiary merely because it is small, operates in a different industry, has severe financial difficulties, or is located in another country.

1.2 Consolidated versus separate financial statements

In consolidated financial statements, the parent’s investment in each subsidiary is replaced by the subsidiary’s identifiable assets, liabilities, income and expenses, together with goodwill and NCI where applicable. In separate financial statements, investments in subsidiaries, associates and joint ventures are accounted for under IAS 27 using a permitted policy, such as cost, IFRS 9, or the equity method where permitted by the applicable requirements.

The distinction matters to users. Consolidated statements describe the resources controlled by the group and obligations incurred by the group. Separate statements describe the parent’s own legal-entity resources and its investments.

2. The consolidation process

A practical consolidation worksheet normally follows this sequence:

1. obtain the parent and subsidiary trial balances and adjust them to consistent accounting policies and reporting dates;
2. identify the acquisition date and measure consideration transferred;
3. measure the subsidiary’s identifiable net assets at fair value at acquisition;
4. calculate goodwill or a bargain purchase gain;
5. calculate post-acquisition movements in the subsidiary’s net assets;
6. recognise NCI;
7. eliminate the parent’s investment against the parent’s share of the subsidiary’s equity at acquisition;
8. eliminate intragroup balances and transactions;
9. recognise fair-value depreciation or amortisation and related tax effects where applicable; and
10. allocate consolidated profit or loss and other comprehensive income between owners of the parent and NCI.

The worksheet is not itself a set of financial statements. It is an audit trail supporting the consolidated statements. Consolidation adjustments do not normally alter the individual entities’ ledgers.

2.1 Uniform policies and reporting dates

The group should use uniform accounting policies for like transactions and events. If a subsidiary uses a different policy, its figures are adjusted for consolidation. Normally, the subsidiary’s reporting date should be the same as the parent’s. If that is impracticable, an additional statement is prepared at the parent’s date, or adjustments are made for significant transactions between the dates. The difference should not normally exceed three months under IFRS 10, and intervening material events must be adjusted.

2.2 Goodwill at acquisition

At the acquisition date, goodwill is measured as:

For a simple acquisition in which there is no previously held interest, the variables are:

• consideration transferred: the fair value of cash, shares, liabilities incurred and other consideration given;
• fair value of NCI: the amount attributable to non-controlling shareholders, measured either at fair value or, for qualifying transactions, at their proportionate share of identifiable net assets;
• fair value of previously held interest: relevant to a business combination achieved in stages; and
• fair value of identifiable net assets acquired: the fair value of identifiable assets less liabilities and contingent liabilities recognised under IFRS 3.

The equation applies at the acquisition date and assumes that all required acquisition-date measurements have been completed. If the result is positive, it is goodwill. If negative after reassessment, it is a bargain purchase gain recognised in profit or loss.

Goodwill is not amortised under IFRS; it is allocated to cash-generating units and tested for impairment under IAS 36. NCI may be measured at fair value (the full-goodwill method) or at the proportionate share of the acquiree’s identifiable net assets (the partial-goodwill method), where permitted. The choice affects the amount of goodwill and the subsequent impairment attributed to NCI.

Worked example 1: goodwill and NCI

P acquired 80% of S for CU900,000. At acquisition, the fair value of S’s identifiable net assets was CU1,000,000. NCI is measured at its proportionate share of net assets.

NCI = 20% × CU1,000,000 = CU200,000.

Goodwill = CU900,000 + CU200,000 − CU1,000,000 = CU100,000.

If NCI had instead been measured at fair value of CU240,000, goodwill would be CU140,000. The difference arises solely from the measurement basis for NCI.

3. Post-acquisition consolidation

At acquisition, the subsidiary’s pre-acquisition equity is eliminated. Post-acquisition changes in net assets are included in consolidated equity and profit or loss according to the ownership interests, subject to adjustments for fair-value depreciation, amortisation, impairment, tax and intragroup items.

If the subsidiary’s post-acquisition retained earnings increase by CU300,000 and the parent owns 75%, the amount attributable to the parent is CU225,000 and the amount attributable to NCI is CU75,000. NCI is presented within equity but separately from equity attributable to owners of the parent.

The consolidated statement of profit or loss includes 100% of the subsidiary’s income and expenses, not merely the parent’s percentage. The resulting profit is then allocated between owners of the parent and NCI. This reflects the fact that the group controls all of the subsidiary’s resources and activities while not owning all of its equity.

Fair-value adjustments

At acquisition, identifiable assets and liabilities are recognised at fair value even if they were not recognised in the subsidiary’s individual financial statements. For example, an acquired customer relationship may be identifiable and recognised under IFRS 3. A fair-value uplift on property, plant and equipment creates additional depreciation after acquisition.

If a machine has a fair-value uplift of CU120,000 and five years of remaining useful life, additional annual depreciation is:

This calculation assumes straight-line depreciation, no residual value and a complete year of post-acquisition use. The adjustment reduces consolidated profit and post-acquisition net assets. Related deferred tax is recognised where the accounting and tax bases differ.

4. Intragroup transactions and unrealised profit

The group is treated as one economic entity. Consequently, transactions between group members cannot create group revenue, expenses, receivables, payables, gains or losses. Consolidation eliminates both the transaction and any resulting balance or unrealised profit.

4.1 Intragroup balances

Eliminate reciprocal receivables and payables, loans and borrowings, accrued interest, and cash in transit where the corresponding entries have been recorded differently. Differences may indicate timing issues, bank charges, foreign exchange movements or errors and must be investigated rather than automatically written off.

4.2 Intragroup sales of inventory

Suppose P sells goods costing CU60,000 to S for CU90,000. If S still holds all goods at year-end, the group has not sold them externally. The consolidation adjustment is:

• Dr consolidated revenue CU90,000;
• Cr consolidated cost of sales CU90,000; and
• eliminate unrealised profit of CU30,000 by Dr cost of sales and Cr inventory.

The inventory is therefore reported at the group’s original cost of CU60,000. If S has sold 40% externally, 60% remains in inventory. Unrealised profit is:

= CU30,000 × 60% = CU18,000.

The adjustment assumes the goods are measured at cost in the group accounts and that the entire CU30,000 profit was recorded by the selling entity. If the seller is the subsidiary, the elimination affects the allocation between parent and NCI because the subsidiary’s reported profit is reduced. If the seller is the parent, the adjustment reduces profit attributable to the parent only.

4.3 Intragroup transfers of non-current assets

When one group entity sells a non-current asset to another at a gain, the gain is unrealised from the group’s perspective. The consolidation entry removes the gain and restores the asset to its carrying amount immediately before the transfer. Depreciation must also be corrected because it was calculated using the inflated transfer price.

For example, an asset with a group carrying amount of CU200,000 is transferred for CU260,000. The CU60,000 gain is eliminated. If the buyer depreciates the asset over five years, excess annual depreciation is CU12,000. That excess depreciation is reversed in consolidation for each full year after transfer, subject to the actual useful life and timing.

4.4 Dividends and interest

Intragroup dividends are not group income. Dividend income recorded by the parent is eliminated against the subsidiary’s dividend distribution. Intragroup interest income and expense are also eliminated. External interest remains in consolidated profit or loss.

4.5 Tax effects

Eliminating unrealised profit may create a temporary difference between the carrying amount of an asset in consolidated financial statements and its tax base. Deferred tax is recognised in accordance with IAS 12. The tax effect should be calculated using the tax rate expected to apply when the temporary difference reverses. It should not be ignored merely because the underlying transaction is eliminated for consolidation.

5. Non-controlling interests

NCI is the equity in a subsidiary not attributable, directly or indirectly, to the parent. It is presented separately within equity. NCI receives its share of the subsidiary’s post-acquisition profit or loss and other comprehensive income, even when this produces a deficit balance, unless specific arrangements impose a different obligation.

Changes in a parent’s ownership interest that do not result in loss of control are equity transactions. The carrying amounts of controlling and non-controlling interests are adjusted, and the difference between the consideration and the adjustment is recognised directly in equity attributable to the parent. No gain or loss is recognised in profit or loss.

6. Associates and the equity method

An associate is an entity over which the investor has significant influence but neither control nor joint control. Significant influence is usually presumed with 20% or more of voting power, unless clearly demonstrated otherwise. Evidence includes board representation, participation in policy-making, material transactions, interchange of management, or provision of essential technical information.

Under the equity method, the investment is initially recognised at cost and subsequently adjusted for the investor’s share of the associate’s post-acquisition profit or loss and other comprehensive income. Dividends received reduce the carrying amount rather than being recognised as income.

The formula assumes the investment remains an associate and that other adjustments—such as fair-value depreciation, impairment and elimination of unrealised profits—are incorporated. The investor recognises its share of the associate’s profit only after adjusting for accounting-policy differences and acquisition-date fair-value effects.

Worked example 2: equity accounting

P acquires 30% of A for CU500,000. During the year A reports profit of CU120,000, other comprehensive income of CU20,000 and dividends of CU30,000. Before considering impairment or other adjustments:

• share of profit = 30% × CU120,000 = CU36,000;
• share of OCI = 30% × CU20,000 = CU6,000; and
• dividend received = 30% × CU30,000 = CU9,000.

Closing investment = CU500,000 + CU36,000 + CU6,000 − CU9,000 = CU533,000.

The investor recognises CU36,000 in profit or loss, CU6,000 in OCI and reduces the investment for CU9,000 of dividends.

Unrealised profits on transactions between an investor and its associate are eliminated to the extent of the investor’s interest, subject to the applicable requirements. The investment is tested for impairment as a single asset when impairment indicators exist.

7. Joint arrangements

IFRS 11 distinguishes a joint operation from a joint venture by reference to the parties’ rights and obligations, not merely the legal form.

A joint operator recognises its share of jointly held assets, liabilities, revenue and expenses, including its share of output sold. A joint venturer recognises one investment and applies the equity method. The conclusion requires analysis of contracts, legal form, financing, purpose, design and other facts.

8. Foreign operations

A foreign subsidiary, associate or joint arrangement must be translated into the group’s presentation currency under IAS 21. The functional currency is the currency of the primary economic environment in which the entity operates.

For a foreign operation whose functional currency differs from the presentation currency:

• assets and liabilities are translated at the closing rate at the reporting date;
• income and expenses are translated at transaction-date rates, or suitable average rates when rates do not fluctuate significantly; and
• equity transactions are translated at the relevant historical rates.

The resulting exchange difference is recognised in other comprehensive income and accumulated in a separate foreign-currency translation reserve until disposal of the foreign operation. If exchange rates fluctuate materially, an average rate may be inappropriate.

Goodwill and fair-value adjustments arising on acquisition of a foreign operation are treated as assets and liabilities of that foreign operation and translated at the closing rate. Exchange differences may also arise on long-term monetary items forming part of the net investment in a foreign operation; qualifying differences are recognised in OCI in consolidated financial statements.

9. Changes in group structure

9.1 Acquisition during the year

A subsidiary acquired part-way through the year contributes income and expenses from the date control is obtained. Pre-acquisition results are excluded from consolidated profit or loss. The acquisition-date statement of financial position includes the subsidiary’s identifiable assets and liabilities at fair value.

9.2 Disposal without loss of control

A sale of part of a subsidiary’s shares without losing control is an equity transaction. The subsidiary continues to be consolidated, and no disposal gain is recognised in profit or loss.

9.3 Loss of control

When control is lost, the parent:

1. derecognises the subsidiary’s assets, liabilities and NCI;
2. recognises the fair value of consideration received;
3. recognises any retained investment at fair value;
4. reclassifies or transfers related OCI where required; and
5. recognises the resulting gain or loss in profit or loss.

A simplified formula is:

The equation applies at the date control ceases and requires consistent treatment of accumulated OCI. After that date, the retained interest is accounted for under IFRS 9, IAS 28 or IFRS 11, depending on the rights that remain.

9.4 Step acquisitions

When control is obtained in stages, the previously held interest is remeasured at fair value at the acquisition date. The resulting gain or loss is recognised as required, and the fair value becomes part of the goodwill calculation.

10. Detailed applied case: Meridian Group

The following is an illustrative case, not a report of an actual company.

Background

Meridian plc acquired 75% of Coast Ltd on 1 January. The consideration was CU1,500,000. At acquisition, Coast’s identifiable net assets had a book value of CU1,700,000 and a fair value of CU1,900,000. The fair-value uplift related to equipment with a remaining useful life of five years. NCI is measured at its proportionate share of identifiable net assets.

During the year, Coast sold inventory costing CU240,000 to Meridian for CU300,000. Meridian still held 25% of the inventory at year-end. Meridian also sold equipment with a group carrying amount of CU400,000 to Coast for CU460,000 on 1 July; Coast depreciates it over four years from the transfer date. Coast reported profit of CU500,000 before consolidation adjustments and paid a dividend of CU80,000 to Meridian.

Analysis and solution

Acquisition accounting.

NCI at acquisition = 25% × CU1,900,000 = CU475,000.

Goodwill = CU1,500,000 + CU475,000 − CU1,900,000 = CU75,000.

Fair-value depreciation.

Annual additional depreciation = CU200,000 uplift ÷ 5 = CU40,000. This reduces Coast’s post-acquisition profit and net assets before allocating profit to the parent and NCI.

Inventory transaction.

Intragroup profit = CU300,000 − CU240,000 = CU60,000.

Unrealised profit = CU60,000 × 25% = CU15,000. Consolidation reduces inventory and profit by CU15,000 and eliminates the intragroup sale and purchase amount of CU300,000.

Equipment transaction.

The intragroup gain is CU460,000 − CU400,000 = CU60,000. Excess depreciation for six months is:

CU60,000 ÷ 4 × 6/12 = CU7,500.

The consolidation adjustment eliminates the CU60,000 gain, restores the equipment to its group carrying amount, and reverses CU7,500 of excess depreciation. The net reduction in current-year consolidated profit from this transaction is CU52,500 before tax.

Dividend.

The CU80,000 dividend income recorded by Meridian is eliminated against Coast’s dividend distribution. It is not group income. Coast’s remaining profit is not reduced again in consolidated profit merely because the dividend was paid; the dividend is a distribution within the group.

Post-acquisition profit allocation.

Adjusted Coast profit before considering the dividend is:

CU500,000 − CU40,000 − CU15,000 + CU7,500 − CU60,000?

The last item requires care. The CU60,000 equipment gain is included in Coast’s or Meridian’s individual profit depending on which entity recorded the sale. In this case Meridian sold the equipment, so the gain is a parent adjustment, not a reduction of Coast’s reported profit. Therefore, adjusted Coast profit is:

CU500,000 − CU40,000 − CU15,000 = CU445,000.

The parent’s consolidated adjustment for the equipment transaction is a CU52,500 reduction in consolidated profit. Coast’s adjusted profit is allocated 75% to the parent (CU333,750) and 25% to NCI (CU111,250). This illustrates why the identity of the selling entity matters.

Outcome

The group reports goodwill of CU75,000, recognises NCI at acquisition of CU475,000, eliminates all intragroup income and balances, carries inventory at the group’s original cost, corrects equipment depreciation, and reports NCI’s share of adjusted subsidiary profit. The case demonstrates that accurate consolidation depends on transaction direction, acquisition-date analysis and careful separation of parent adjustments from subsidiary adjustments.

Learning points

• Acquisition-date fair values drive both goodwill and later depreciation.
• Intragroup profit is unrealised only to the extent that assets remain within the group.
• A dividend from a subsidiary is not group income.
• The seller’s identity affects the allocation of consolidation adjustments.
• A worksheet should document each adjustment and its effect on parent owners and NCI.

11. Governance, professional judgement and technology

Consolidation involves significant judgement. Boards and audit committees should challenge control conclusions, acquisition-date valuations, impairment models, useful lives, foreign exchange assumptions and the completeness of intragroup eliminations. Related-party disclosures should explain material transactions and balances. Manipulating transfer prices or delaying the elimination of unrealised profits can overstate group performance and may constitute financial reporting misconduct.

Effective controls include a group accounting manual, a controlled chart of accounts, standard intercompany confirmation procedures, ownership registers, acquisition checklists, documented control assessments, and review of consolidation journals by personnel independent of their preparation.

Consolidation software and enterprise resource planning systems can automate ownership percentages, intercompany matching, currency translation and recurring journals. Artificial intelligence may assist with anomaly detection, transaction classification and identifying unmatched balances. However, AI outputs require human validation, traceability, access controls and protection of confidential data. Technology cannot replace the professional judgement required to determine control, significant influence or the substance of a joint arrangement.

12. Challenges and limitations

Common difficulties include complex shareholding chains, indirect ownership, potential voting rights, different reporting dates, inconsistent accounting policies, incomplete intercompany data, foreign exchange volatility, acquisitions close to year-end, earn-out consideration, and transactions with associates or joint ventures. Consolidated statements also have limitations: they may obscure the performance of individual subsidiaries, combine businesses with different risk profiles, and make leverage or liquidity constraints difficult to interpret. Users should read segment information, separate financial statements, accounting policy notes and related-party disclosures alongside the consolidated statements.

Best practice is to begin with a documented group structure, identify all changes during the period, complete acquisition accounting before routine consolidation, reconcile intercompany accounts at month-end, retain an auditable consolidation bridge, and perform analytical review of movements in goodwill, NCI, equity and foreign-currency reserves.

Chapter Summary

Consolidated financial statements present a parent and its subsidiaries as one economic entity. The central test is control, requiring power, exposure to variable returns and the ability to use power to affect those returns. Consolidation includes 100% of a subsidiary’s assets, liabilities, income and expenses, followed by separate presentation of NCI.

At acquisition, consideration, NCI and any previously held interest are compared with the fair value of identifiable net assets to calculate goodwill or a bargain purchase gain. Subsequent consolidation incorporates post-acquisition results, fair-value depreciation, impairment and tax effects. Intragroup balances, sales, dividends, interest and unrealised gains are eliminated. Associates and joint ventures generally use the equity method, whereas joint operations are accounted for by recognising the operator’s rights to assets and obligations for liabilities.

Foreign operations require translation into the presentation currency, with qualifying exchange differences recognised in OCI. Ownership changes without loss of control are equity transactions; loss of control requires derecognition, remeasurement and recognition of a disposal result. High-quality group reporting depends on sound judgement, effective controls, transparent disclosures and carefully governed technology.

Key Terms

Control: The power to direct relevant activities, exposure to variable returns, and ability to affect those returns.

Parent: An entity that controls one or more entities.

Subsidiary: An entity controlled by another entity.

Consolidated financial statements: Financial statements presenting a group as a single economic entity.

Non-controlling interest: Equity in a subsidiary not attributable to the parent.

Business combination: A transaction in which an acquirer obtains control of one or more businesses.

Goodwill: The residual excess of the acquisition-date consideration and related amounts over identifiable net assets acquired.

Fair value: The market-participant-based exit price for an asset or liability at the measurement date.

Pre-acquisition equity: The subsidiary’s equity existing at the acquisition date.

Post-acquisition profit: Changes in subsidiary net assets arising after control is obtained.

Intragroup transaction: A transaction between entities within the same group.

Unrealised profit: Profit included in an asset still held within the group and therefore not realised through an external transaction.

Associate: An entity over which the investor has significant influence.

Significant influence: Power to participate in, but not control, financial and operating policy decisions.

Equity method: Accounting that adjusts an investment for the investor’s share of investee results and distributions.

Joint operation: A joint arrangement giving parties rights to assets and obligations for liabilities.

Joint venture: A joint arrangement giving parties rights to the net assets.

Functional currency: The currency of the primary economic environment in which an entity operates.

Foreign-currency translation reserve: Equity accumulation of qualifying exchange differences from translating a foreign operation.

Loss of control: The event in which a parent ceases to control a subsidiary.

Review Questions

Short Answer Questions

1. What three conditions must exist for an investor to control an investee under IFRS 10?
2. Why are intragroup dividends eliminated in consolidated financial statements?
3. Distinguish an associate from a subsidiary.
4. How is NCI presented in consolidated financial statements?
5. What is the principal accounting distinction between a joint operation and a joint venture?

Long Answer Questions

1. Explain the acquisition method and show how goodwill is calculated, including the possible methods of measuring NCI.
2. Describe the consolidation treatment of intragroup inventory sales, including unrealised profit and deferred tax considerations.
3. Explain the equity method for an associate and discuss the treatment of dividends, OCI and impairment.
4. Discuss the translation of a foreign operation and the treatment of resulting exchange differences.
5. Explain the accounting consequences of a parent losing control of a subsidiary.

Analytical / Application Questions

1. A parent owns 80% of a subsidiary. The subsidiary sells goods at a 25% profit margin on cost, and 40% of the goods remain unsold at year-end. Explain the consolidation adjustments and identify which entity’s profit allocation may be affected if the subsidiary is the seller.
2. An investor owns 30% of an entity, appoints two of five directors, and participates in policy decisions but does not control the board. Analyse whether significant influence exists and explain the likely accounting method.
3. A group acquires a foreign subsidiary late in the year and sells 10% of its shares without losing control. Analyse the effects on consolidation, NCI, foreign-currency translation and equity.

Multiple Choice Questions with Answers

Question 1

Which combination of conditions establishes control under IFRS 10?

A. Ownership of exactly 50% of shares and receipt of dividends

B. Power, exposure to variable returns, and ability to use power to affect returns

C. Significant influence, contractual access to information, and board attendance

D. Legal ownership of assets, borrowing capacity, and positive cash flow

Correct Answer: B. Power, exposure to variable returns, and ability to use power to affect returns

Question 2

A parent pays CU900,000 for 80% of a subsidiary. The fair value of identifiable net assets is CU1,000,000 and NCI is measured proportionately. What is goodwill?

A. CU100,000

B. CU120,000

C. CU200,000

D. CU300,000

Correct Answer: A. CU100,000

Question 3

A subsidiary sells inventory costing CU60,000 to the parent for CU90,000. Half remains unsold at year-end. What unrealised profit is eliminated?

A. CU15,000

B. CU30,000

C. CU45,000

D. CU60,000

Correct Answer: A. CU15,000

Question 4

How is a subsidiary’s profit generally included in consolidated profit or loss?

A. Only the parent’s ownership percentage is included

B. 100% is included, then profit is allocated between parent owners and NCI

C. Only the amount distributed as dividends is included

D. The subsidiary’s profit is excluded until disposal

Correct Answer: B. 100% is included, then profit is allocated between parent owners and NCI

Question 5

Under the equity method, dividends received from an associate generally:

A. Increase investment income

B. Increase the carrying amount of the investment

C. Reduce the carrying amount of the investment

D. Are recognised directly in goodwill

Correct Answer: C. Reduce the carrying amount of the investment

Question 6

Which accounting treatment normally applies to a joint venture?

A. Full consolidation

B. Equity method under IAS 28

C. Recognition of only dividend income

D. Immediate expensing of the investment

Correct Answer: B. Equity method under IAS 28

Question 7

For a foreign operation, assets and liabilities are generally translated at:

A. The acquisition-date rate

B. The average annual rate only

C. The closing rate at the reporting date

D. The rate used for tax purposes

Correct Answer: C. The closing rate at the reporting date

Question 8

A parent sells part of its interest in a subsidiary but retains control. The transaction is generally treated as:

A. A disposal creating a profit or loss in all cases

B. An equity transaction

C. A joint venture formation

D. A bargain purchase

Correct Answer: B. An equity transaction

Question 9

A machine has a fair-value uplift of CU120,000 and five years of remaining useful life, with straight-line depreciation and no residual value. What is annual additional depreciation?

A. CU12,000

B. CU20,000

C. CU24,000

D. CU60,000

Correct Answer: C. CU24,000

Question 10

When control of a subsidiary is lost, a retained interest is generally:

A. Ignored permanently

B. Remeasured at fair value at the date control is lost

C. Always retained at original cost

D. Transferred to NCI without measurement

Correct Answer: B. Remeasured at fair value at the date control is lost