1) Decomat Ltd (D) acquires 75% of equity shares in Macs Ltd (M) through exchanging one $1 share in D for three $1 shares in M. M has a total of 60 000 shares. D's shares have a market value of $3 on the date of acquisition, while M's shares are valued at $2. Determine the cost of the business combination.

A) $15 000

B) $45 000

C) $60 000

D) $90 000

2) V Ltd is a 65% owned subsidiary company of A Ltd. During the financial year, V Ltd suffered a substantial loss that ultimately deteriorated the financial position of the group. To overcome this and avoiding consolidation accounting, the management of A Ltd sold 16% of its ownership in V Ltd to Z Ltd without voting power. Justify whether A Ltd can exclude V Ltd from the consolidation process?

A) Yes, as the control is lost, the parent now holds only 49% in the subsidiary.

B) No, as it is the intention of the parent to uphold the financial position dishonestly.

C) No, as A Ltd continues to control V Ltd.

D) Yes, as the AASB10 allows a parent to exclude the subsidiary from consolidation.

3) Which of the following statements is not true with respect to consolidated financial statements?

A) Consolidated financial statements should be prepared using uniform accounting policies.

B) Consolidated statements should include the consolidated cash flow statement.

C) Investment in an associate company is accounted for using the equity method of accounting.

D) During a financial year if a parent company loses ‘control' of a subsidiary company, the consolidated statement of comprehensive income should not include the profit or loss of the subsidiary company for the period of the same financial year when the parent company had ‘control' of the subsidiary company.

4) Venus Ltd made a takeover bid for all the issued voting shares of Mars Ltd offering 3 Venus Ltd shares for every 2 Mars Ltd shares. The offer from Venus Ltd was accepted by 90% of the shareholders of Mars Ltd. At acquisition date, 1 January 20x7, the following information was available.

Mars Ltd. at 31 December 20x6 $'000
Share Capital (200 000 shares) 200
Capital Profits Reserve 300 Retained
Profits 150
Total Equity 650
Market value of each company's shares at 1 January 20x7 Venus Ltd $3.20 Mars Ltd $4.00

In Mars Ltd's accounting records, land was stated at $160 000 below its cost to the economic entity (i.e. fair value at acquisition date). This was accounted for as a consolidation adjustment. The rate of company income tax was 30%. What was the goodwill on acquisition date?

A) $206 000

B) $394 000

C) $178 000

D) $135 000

5) L Ltd owns 100% equity of S Ltd. The following inter-entity transaction took place between L Ltd and S Ltd. During the period, S Ltd sells inventory to L Ltd at a sales price of $300 000. S Ltd marks up its inventory by 50%. At the end of the period, 25% of this inventory is still on hand with L Ltd. The tax rate is assumed to be 30%. What will be the ‘CR' to the inventory asset account in the consolidation adjustment journal?

A) $25 000

B) $40 000

C) $28 000

D) None of the above

6) MN Ltd is a parent company of YZ Ltd. The consolidated statement of comprehensive income reveals sales revenue $40 000 and cost of goods sold $30 000. The accountant has failed to differentiate normal sales with intra-group sales of $5 000 made by YZ Ltd. The cost of the product was $4 000. Of the product purchased from the subsidiary company, 30% has remained in the inventory at the year end. What is the effect of the intra-group transaction on the gross profit?

A) To be reduced by $300

B) To be increased by $300

C) To be reduced by $1 000

D) To be increased by $1 000

7) Elegant Ltd is a majority-owned subsidiary company of Innova Ltd. Elegant Ltd has sold some assets to Innova Ltd. How will these assets be reflected in the consolidated statement of financial position of both companies? The value of the assets will

A) appear at selling price in the consolidated statement.

B) appear at cost in the consolidated statement.

C) not be reflected in the consolidated statement.

D) be the same for both companies in their individual statement of financial position.

8) Sun Ltd has 40% shares of Yan Ltd. The carrying amount of this investment at the beginning of the year is $100 000. Yan Ltd makes a $120 000 loss for the year. An impairment test shows that the investment has a recoverable value of $40 000. The investment will be measured at?

A) ($120 000)

B) ($20 000)

C) $0

D) $40 000

9) Elsevier Ltd holds 90% equity in Boutique Ltd and 40% in Ninteen Ltd. The profit data after all adjustments are: Profit after tax Elsevier Ltd $700 000 Profit after tax Boutique Ltd $200 000 Profit after tax Ninteen Ltd $600 000 What is the total profit attributable to the owners of the parent company?

A) $700 000

B) $880 000

C) $940 000

D) $1 120 000

10) An investor company holds 45% of shares, valued at $60 000, in its associate company. It has also given a loan of $50 000 to its associate company on 1st January 2011. The associate company has incurred losses of $80 000 for the financial year end 31st December 2011. What is the value of the investment in the associate company reported in the financial statements of the investor company for the year end 2011?

A) ($44 000)

B) ($36 000)

C) $24 000

D) $74 000