1.

Ownership interests in a subsidiary entity other than the parent's interest are
referred to as:

 A. outside interests;
 B. partial interests;
 C. minority interests;
 D. non-controlling interests.

A Incorrect. These interests are known as the non-controlling interests.

B Incorrect. They are referred to as the non-controlling interests.
C Incorrect. These interests are known as non-controlling interests.
D Correct. The equity that is owned by parties other than the parent entity are
referred to as non-controlling interests.
Section 17.1

2. A non-controlling interest is a contributor of:

 A. equity to a consolidated group;
 B. debt to a consolidated group;
 C. assets to a consolidated group;
 D. profit to a consolidated group.

A Correct. The non-controlling interest contributes equity to a group of entities.

B Incorrect. The non-controlling interest contributes equity not liabilities to a
group.
C Incorrect. The non-controlling interest contributes equity not assets to a
consolidated group.
D Incorrect. The non-controlling interest is a contributor of equity not profit.
Section 17.1

3. When presenting a consolidated statement of financial position the non-

controlling interest is:
 A. presented separately within the non-current liability section;
 B. presented as a separate component of total assets and total liabilities;
 C. presented separately within the equity section;
 D. shown as a separate portion of net assets.
 A Incorrect. The non-controlling interest is not shown as a separate portion of
liabilities.
B Incorrect. The non-controlling interest is shown as a separate component of
equity.
C Correct. The non-controlling interest is presented as a separate item in equity.
D Incorrect. The net assets are not shown as separately attributable to the non-
controlling interest.
Section 17.1

4. Under the conceptual framework for international financial reporting a non-

controlling interest fits the definition of:

 A. a liability;
 B. an equity item;
 C. an asset;
 D. an expense.

A Incorrect. Non-controlling interest fits the definition of equity.

B Correct. Under the international financial reporting framework a non-
controlling interest fits the definition of equity.
C Incorrect. Non-controlling interest fits the definition of equity not assets.
D Incorrect. A non-controlling interest fits the definition of equity not expense.
Section 17.1

5. When presenting a consolidated income statement the non-controlling interest is:

 A. shown as a separate component of each line item;

 B. shown as a separate component of profit before tax and a separate component of tax
expense;
 C. presented as a separate portion of gross profit;
 D. presented as a separate portion of profit or loss attributable to the non-controlling
interest.

A Incorrect. The non-controlling interest in profit or loss is shown as a one-line

item.
B Incorrect. The non-controlling interest is shown as a portion of after tax profit.
C Incorrect. The non-controlling interest is shown as a portion of after tax profit
 not of gross profit.
D Correct. The after tax profit or loss is apportioned as attributable to the non-
controlling interest and the equity interests of the parent.
Section 17.1

6. When presenting a consolidated statement of changes in equity:

 A. the minority interest's share of each item of equity must be separately presented;
 B. it is only necessary to show a one-line item reflecting the minority interest's share of
the net change;
 C. the minority interest is not shown;
 D. it is only necessary to show the minority interest in the closing balance of equity.

A Correct. The minority interest in each item of equity must be disclosed.

B Incorrect. It is necessary to present the minority interest on a line-by-line basis.
C Incorrect. The minority interest in each item is shown.
D Incorrect. The minority interest in each line item is shown.
Section 17.1

7. If a subsidiary is not wholly owned the assets, liabilities and contingent liabilities
of the subsidiary must be revalued using the following valuation method:
 A. historic cost;
 B. liquidation value;
 C. fair value;
 D. lower of cost or market value.

A Incorrect. Fair values must be used whether the subsidiary is wholly or partly
owned.
B Incorrect. The assets, liabilities and contingent liabilities are revalued using
fair values.
C Correct. Fair value is the required revaluation method whether the subsidiary is
wholly or partly owned.
D Incorrect. The fair value method is used not the lower of cost or market value
method.
Section 17.1
8. X Limited paid $120 000 for 70% of Y Limited. At the date of acquisition Y
Limited had Share capital of $100 000 and Retained earnings of $50 000 and all
of Y Limited's assets and liabilities were recorded at fair value. The net fair value
acquired by X Limited amounted to:
 A. $35 000;
 B. $70 000;
 C. $105 000;
 D. $120 000.

A Incorrect. This is 70% of retained earnings only.

B Incorrect. This is 70% of share capital only.
C Correct. The net fair value acquired is calculated as: Total equity ($150 000) x
70% = $105 000.
D Incorrect. This is the consideration paid for the interest acquired.
Section 17.3

9. Janice Limited acquired 80% of the share capital and reserves of Lesley Limited
for $200 000. Share capital was $100 000 and reserves amounted to $60 000. All
assets and liabilities were recorded at fair value except Buildings which was
recorded at $10 000 below fair value. The company tax rate was 30%. The
amount of goodwill recognised under the partial goodwill method in this business
combination was:
 A. $33 000;
 B. $40 000;
 C. $66 400;
 D. $72 000.

A Incorrect. This is the amount of goodwill if the subsidiary is 100% owned by

the parent.
B Incorrect. This is the difference between cost and carrying amount of net assets
before revaluation.
C Correct. This amount is calculated as follows: Cost ($200 000) – [80% x (Total
equity ($160 000) +70%x(10000))].
D Incorrect. This is the amount of goodwill if the tax effect of the revaluation is
ignored.
Section 17.3
10. When determining the amount of goodwill to be presented in a set of
consolidated financial statements under the partial goodwill method:
 A. the goodwill acquired by the parent is inflated to include a notional goodwill
component for the non-controlling interests;
 B. the goodwill acquired is apportioned between the parent and the non-controlling
interest;
 C. the goodwill acquired by the non-controlling interest is included in the pre-
acquisition adjustment;
 D. only the goodwill acquired by the parent is recognised.

A Incorrect. Only the goodwill acquired by the parent is recognised.

B Incorrect. The goodwill reflects only the portion acquired by the parent.
C Incorrect. Only the goodwill acquired by the parent is included.
D Correct. Only goodwill that has been acquired by the parent can be included.
Section 17.3

11. When preparing a set of consolidated financial statements, the pre-acquisition

adjustment relates to:
 A. both the parent and the non-controlling interest in the subsidiary;
 B. only the investment by the parent in the subsidiary;
 C. only the investment by the non-controlling interest in the subsidiary;
 D. the total investment by the parent in the subsidiary plus the after tax effect of the
investment by the non-controlling interest.

A Incorrect. The pre-acquisition adjustment relates only to the parent's

investment in the subsidiary.
B Correct. The pre-acquisition adjustment reflects the investment by the parent
in the subsidiary.
C Incorrect. The pre-acquisition adjustment does not reflect the non-controlling
interest in the subsidiary.
D Incorrect. The pre-acquisition adjustment includes only the parent's
investment in the subsidiary.
Section 17.1

12. When a subsidiary's assets are revalued up to fair value on consolidation the
following tax effect occurs:
 A. a temporary taxable difference reverses;
  B. a temporary deductible difference arises;
 C. deferred tax liability increases;
 D. deferred tax liability decreases.

A Incorrect. A temporary taxable difference arises.

B Incorrect. A temporary taxable difference arises.
C Correct. A deferred tax liability resulting from a temporary taxable difference
must be recognised.
D Incorrect. A deferred tax liability arises.
Section 17.3

13. Company A Limited owns 70% of the share capital of Company B Limited.
Company B Limited paid a dividend of $10 000 during the financial period. The
adjustment entries in the consolidation worksheet for the dividend include:
 A. DR Dividend revenue $7 000;
 B. DR Dividend revenue $10 000;
 C. DR Dividend payable $7 000;
 D. DR Dividend payable $10 000.

A Correct. Only the parent's portion of the dividend has been recognised in its
accounting records. The non-controlling interest has received its share of the
dividend directly.
B Incorrect. A proportional adjustment is required.
C Incorrect. The dividend is paid not payable.
D Incorrect. The dividend is paid not payable and the amount of the adjustment
is $7 000.
Section 17.3

14. The non-controlling interest columns on a consolidation worksheet are used to:

 A. adjust the amounts that have been recorded for intragroup revenue transactions;
 B. adjust the amounts that have been recorded for intragroup services;
 C. eliminate the recorded amounts of the non-controlling investment in the subsidiary;
 D. compile the amounts of non-controlling interest and parent share of particular line
items.
 A Incorrect. The non-controlling interest columns are used to compile the non-
controlling interest share of equity and profit or loss.
B Incorrect. The non-controlling interest columns are not used for adjustments.
C Incorrect. The non-controlling interest columns are not used for eliminations.
D Correct. The non-controlling interest columns are used to compile the non-
controlling interest share of equity and profit or loss.
Section 17.2

15. A non-controlling interest in the net assets of a subsidiary consists of the

amount of those non-controlling interests at the date of the business
combination:

 A. less 100% of any post-acquisition dividends paid;

 B. less the parent's share of any post-acquisition dividends paid or declared;
 C. plus a share of the changes in equity since the business combination;
 D. less the non-controlling proportionate share of changes since the combination.

A Incorrect. No adjustment is made for dividends.

B Incorrect. No adjustment is made for dividends.
C Correct. The non-controlling interest is entitled to a share of the post-
acquisition changes in equity.
D Incorrect. The non-controlling interest is also entitled to a share of any
changes in equity since the business combination.
Section 17.2

16. A non-controlling interest in a subsidiary entity is entitled to a share of the

following items:
I II III IV
Subsidiary equity acquisition date Yes Yes Yes Yes
Changes in equity since acquisition date Yes No No Yes
Changes in equity of the current period No Yes No Yes

 A. I;
 B. II;
 C. III;
 D. IV.
 A Incorrect. The non-controlling interest is entitled to a share of changes in
equity of the current reporting period.
B Incorrect. A non-controlling interest is entitled to a share of changes in equity
since acquisition date.
C Incorrect. A non-controlling interest is entitled to a share of all three.
D Correct. A non-controlling interest is entitled to a share in equity of the
subsidiary at acquisition date and since acquisition date including changes to
equity in the current reporting period.
Section 17.2

17. Vampire Limited acquired a 70% interest in Empire Limited when the retained
earnings of Empire Limited amounted to $20 000. At the beginning of the
current period the Retained earnings balance of Empire Limited was $50 000
and current period profits for Empire Limited amounted to $10 000. The non-
controlling interest in the equity of Empire Limited is:
 A. $18 000;
 B. $24 000;
 C. $42 000;
 D. $56 000.

A Correct. This is the non-controlling interest in the equity at acquisition date

($20 000 x .3) plus changes in equity since the combination (.3 x 50 000 - $20
000 plus share of current period profit (.3 x $10 000).
B Incorrect. This calculation double counts the acquisition date equity.
C Incorrect. This is the parent's interest in the equity of the subsidiary.
D Incorrect. This calculation double counts the equity at acquisition date and
uses the parent's share.
Section 17.2

18. For a transaction to require an adjustment to the calculation of a non-controlling

interest share of equity it must have the following characteristics:

I.     The transaction must result in the subsidiary recording a profit or a loss.

II.     After the transaction the other party (not the non-controlling party) must
have on hand an asset on which unrealised profit is accrued.
III.     The initial consolidation adjustment must affect both the statement of
 19. In respect to the intragroup transfer of services any profit or loss is regarded
as:
 A. insignificant and so not adjusted on consolidation;
 B. extraordinary and so ignored for consolidation reporting purposes;
 C. immediately realised;
financial position and statement of comprehensive income.
 D. unrealised.
 A. I and II only;
 B. I, II and III;
 C. IIprofit
A Incorrect. The and IIIoronly;
loss is regarded as immediately realised.
 D. None of the
B Incorrect. The profit or loss above.
is not regarded as extraordinary.
C Correct. Intragroup transfers of services are regarded as realised
immediately.
D Incorrect.AIntragroup
Incorrect. The transaction
transfers must have
are regarded all of these realised.
as immediately characteristics.
Section 17.4B Correct. The transaction must contain all of these characteristics.
C Incorrect. The transaction must also result in a profit or loss recorded by the
20 In respect to a gain on bargain purchase arising on
subsidiary.
. D Incorrect.
anacquisition,
All ofthe non-controlling
these interest
characteristics is entitled to:
are required.
Section 17.3
A. 100% of the gain;
B. a proportionate share based on the extent of its share ownership in the
subsidiary;
C. a proportionate share of the gain after adjustments for tax effects have been
made;
D. zero.

A Incorrect. The non-controlling is does not receive a share

relating to the gain.
B Incorrect. The non-controlling does not share in the gain on
consolidation.
C Incorrect. The gain not apportioned between the parent and
the minority.
D Correct. The non-controlling does not receive any share
relating to an gain arising on consolidation.
Section 17.4
The only way in which
a parent-subsidiary
relationship can be
established is for the
parent company to
acquire more than
50% of the ordinary
shares of the
subsidiary company.
True or False?

False
Your
Answer:

2. When a parent company

acquires a subsidiary, the
amount paid for goodwill is
equal to the amount paid by
the parent company for its
 1.On the acquisition of a subsidiary by an investor, purchased goodwill should be:
a.Recognised in the financial statements of either the subsidiary or investor
b.Recorded separately in the financial statements of the subsidiary only
c.Recorded in a consolidation adjusting entry
d.Recognised separately in the financial statements of the investor only
 
 
2. At 1 January 20X4 Yogi acquired 80% of the share capital of Bear for
$1,400,000. At that date the share capital of Bear consisted of 600,000 ordinary
shares of 50c each and its reserves were $50,000. The fair value of the non-
controlling interest was valued at $525,000 at the date of acquisition.In the
consolidated statement of financial position of Yogi and its subsidiary Bear at 31
December 20X8, what amount should appear for goodwill?
a.$1,575,000 (1400000+525000)-(600000*0.5+50000)
b.$630,000
c.$1,050,000
d.$450,000
 
 
3. On 1 July 2019, A Ltd pays £870,000 to acquire the entire share capital of B Ltd.
The equity of B Ltd on that date consists of ordinary share capital of £400,000 and
retained earnings of £210,000. The fair value of the non-current assets of B Ltd on
1 July 2019 exceeds their carrying amount by £35,000. Tax rate 20%. The amount
paid for goodwill by A Ltd is:
a.£260,000
b.£232,000    870000-(400000+210000+35000*80%)
c.£225,000
d.£470,000
 
4.Which of the following statements is not a key feature of the acquisition
method?a.An acquirer being identified for each business combinationamortization
b.The goodwill being measured as the consideration transferred plus the amount of any NCI interest plus
the fair value of any previously held equity intersest in the acquire less the fair value of the identifiable net
assets acquired.
c.The acquired identifiable net assets being measured at the fair value
d.The cost of business combination being measured at fair value  of the net assets received from the
acquiree
 
5. Which of the following statement(s) is / are correct with regard to preparation
of consolidated financial Statement?
i) To be a subsidiary a parent should hold 100% of its equity shares
ii) Consolidation merely addition together of two Statements of financial position
iii) In consolidation a subsidiary and an associate are treated identically
iv) Consolidated balance sheet excludes assets not owned by the group
a.ii&iii     
b.i&ii      
c.ii&iv
d.None
 
6. Applying the acquisition method involves the following steps:  (i)Identifying an
acquirer; (ii)Measuring the cost of the combination. (iii)Allocating, at the
acquisition date, the cost of the combination to the assets acquired and liabilities
and contingent liabilities assumed. (iv)Amortising the goodwill.
a.ii – iii
b.i – iv
c.i – iii
d.i – ii
 
 In relation to goodwill arising from a business combination, which of the
following statements in accordance with IFRS 3 Business Combination
 
a.
Goodwill is only tested for impairment if circumstances indicate it may be impaired
 
b.
 Goodwill should be measured at cost less accumulated impairment losses
 
c.
Goodwill should be amortised on a straight – line basis over its useful life
d.
Goodwill should be measured as cost less accumulated amortization
 
7. The amount of profit attributable to the non-controlling interest in a 90%
subsidiary is generally equal to:
a.10% of the subsidiary's profit before tax       
b.10% of the group profit after tax                 
c.10% of the group profit before tax
d.10% of the subsidiary's profit after tax
 
8. Which of the following companies would qualify to be regarded as subsidiaries
of Alpha?
i) Beta in which Alpha has 15% votes and a place on the board of directors
ii) Delta in which Alpha has 52% votes but no place on the board of directors
iii) Gamma in which Alpha has 25% shares and two places on the board of directors
iv) Theta in which Alpha holds 100% votes and all places on the board of directors
a.(ii) & (i)      
b.ii&iv         
c.ii&iii        
d.i&iii
 
9. On 1 January 2013, E Ltd paid £560,000 to acquire 80% of the ordinary share
capital of F Ltd. The equity of F Ltd on that date consisted of ordinary share
capital of £300,000 and retained earnings of £150,000. All of its assets and
liabilities were carried at fair value. On 31 December 2016, the retained earnings
of E Ltd and F Ltd are £1,870,000 and £65,000 respectively. Goodwill arising on
consolidation has suffered an impairment loss of 70% since 1 January 2013. The
retained earnings figure which should be shown in the consolidated statement of
financial position at 31 December 2016 is:
a.£1,725,000
b.£1,662,000
c.£1,645,000
d.£1,708,000
 
10. IFRS 3:
a.Allows either the unitings of interest method, or the acquisition method
b.Allows only the acquisition method or merger method
c.Allows only the acquisition method
d.Allows only the unitings of interest method
 
11. At 1 January 20X6 Fred acquired 75% of the share capital of Barney for
$750,000. At that date the share capital of Barney consisted of 20,000 ordinary
shares of $1 each and its reserves were $10,000. The fair value of the non-
controlling interest was valued at $150,000 at 1 January 20X6.
In the consolidated statement of financial position of Fred and its subsidiary
Barney at 31 December 20X9, what amount should appear for goodwill?
a.$150,000
b.$870,000
c.$720,000
d.$750,000Applying the acquisition method involves the following steps:  (i)Identifying an acquirer;
 
 12. In relation to goodwill arising from a business combination, which of the
following statements in accordance with IFRS 3 Business Combination
a.Goodwill is only tested for impairment if circumstances indicate it may be impaired
b.Goodwill should be measured as cost less accumulated amortization
c. Goodwill should be measured at cost less accumulated impairment losses
d.Goodwill should be amortised on a straight – line basis over its useful life
 
14. In accordance with IFRS 10 – Consolidated financial statements, a
consolidated statement of financial position (or note thereto) would not present
information relating to which of the following?
a. Investments in subsidiaries
b. NCI’share of consolidated net assetsUnder IFRS 3, acquired contingent liabilities are:
c. Loans to entities not related to the group
d. Goodwill acquired by the group
 
15. Which of the following statements is / are correct with regard to accounting
for goodwill?   
a. Goodwill needs to be written off as soon as it is identified
b. Goodwill should be amortised over an estimated useful life
c. Goodwill is reported continuously as an asset unless it is impaired 
d. Goodwill should be amortised over an estimated useful life not exceeding twenty years
 
16. On 1 January 2009, P Ltd paid £480,000 to acquire 65% of the ordinary share
capital of Q Ltd. The equity of Q Ltd on that date consisted of ordinary share
capital of £200,000 and retained earnings of £150,000. The fair value of the non-
current assets of Q Ltd on 1 January 2009 exceeded their carrying amount by
£250,000. Goodwill arising on consolidation has suffered an impairment loss of
40% between 1 January 2009 and 31 December 2016. The goodwill figure which
should be shown in the consolidated statement of financial position at 31
December 2016 is:
a. £36,000
b. £151,500
c. £78,000
d. £54,000
 
17. Negative goodwill should be:
a.Recorded in the income statement 
b.Ignore
c.Allocated to non-current assets
d.Matched to future losses
 
18. On 1 May 20X4, C Ltd paid £430,000 to acquire the entire share capital of D
Ltd. The equity of D Ltd on that date consisted of ordinary share capital of
£200,000 and retained earnings of £90,000. All of its assets and liabilities were
carried at fair value. On 30 April 20X6, the retained earnings of C Ltd and D Ltd
are £970,000 and £115,000 respectively. Goodwill arising on consolidation has
suffered an impairment loss of 25% since 1 May 20X4. Group retained earnings at
30 April 20X6 are:
a.£1,085,000    
b.£ 980,000  
c.£1,050,000
d.£960,000    
 
19. At 1 January 20X4 Yogi acquired 80% of the share capital of Bear for
$1,400,000. At that date the share capital of Bear consisted of 600,000 ordinary
shares of 50c each and its reserves were $50,000. The fair value of the non-
controlling interest was valued at $525,000 at the date of acquisition.
 
20. Under IFRS 3, acquired contingent liabilities are:
a.Included in the cost of combination, only if they can be reliably measured
b.Always included in the cost of combination
c.Included in NCI
d.Included in goodwill
 
21.  If the capital and reserves, including fair valuation gain of a subsidiary is
£5,400 and the parent acquires the whole of it for £4,000, the difference of £1,400
would be known as:
a.Badwill
b.Gain on acquisition
c.Goodwill
d.Negative goodwill   
 
22. In the consolidated statement of financial position of Yogi and its subsidiary
Bear at 31 December 20X8, what amount should appear for goodwill?
a.$630,000
b.$1,575,000
c.$450,000
d.$1,050,000
 
 
Which of the following statement(s) is / are correct with regard to preparation of consolidated
financial Statement?
i) To be a subsidiary a parent should hold 100% of its equity shares
ii) Consolidation merely addition together of two Statements of financial position
iii) In consolidation a subsidiary and an associate are treated identically
iv) Consolidated balance sheet excludes assets not owned by the group
 
a.
ii&iv
b.
ii&iii     
c.i&ii      
d.None
 
In accordance with IFRS 10 – Consolidated financial statements, a consolidated
statement of financial position (or note thereto) would not present information relating to
which of the following?
a.
Investments in subsidiaries
b.
Goodwill acquired by the group
c.
NCI’share of consolidated net assets
d.
Loans to entities not related to the group