Multiple Choice

1. According to PFRS 10
A. A parent entity is required to consolidate its subsidiaries.
B. A parent entity is encouraged but not required to consolidate its subsidiaries.
C. A parent need not consolidate a subsidiary if the subsidiary’s business is
different from that of the parent.
D. A parent entity is required to consolidate its subsidiaries only for internal
reporting purposes.

2. How is the non-controlling interest (NCI) in the subsidiary’s profit or loss presented in the
consolidated statement of profit or loss?
A. As part of the group’s profit or loss. The group’s profit or loss is then attributed
to both the owners of the parents and NCI.
B. Not presented but disclosed either as a footnote or in the notes. The consolidated
profit or loss pertains to the parent only.
C. The consolidated profit or loss pertains to the parent only.
D. Any of these as a matter of accounting policy choice.

3. How is the non-controlling interest in the subsidiary’s net assets presented in the
consolidated statement of financial position?
A. As a mezzanine item between liabilities and equity.
B. Within equity but separately from the equity of the owners of the parent.
C. Within equity as part of retained earnings.
D. Any of these as a matter of accounting policy choice.

4. Which of the following is incorrect regarding consolidated financial statements?

A. A parents is exempt from consolidation if it is in itself a subsidiary, its securities
are not traded, and its parent produces PFRS consolidated financial statements.
B. Consolidation involves adding similar assets, liabilities, income and expenses
of the parents and its subsidiaries.
C. The subsidiary’s equity is eliminated and replaced with non-controlling interest.
D. The consolidated profit pertains only to the parent.

5. Goodwill is attributed to both the owners of the parent and non-controlling interest (NCI)
if?
A. The NCI is measured at proportionate share.
B. The NCI is measured at fair value.
C. In both A and B.
D. The goodwill is big.

6. Entity A acquired 80% in Entity B on December 31, 2022. How much of Entity B’s profit
will be included in the December 31, 2022 consolidated statement of profit or loss?
A. None
 B. 80%
C. 100%
D. B or C

7. In which of the following instances does Entity A have control over Entity B?
A. Entity A and Entity B both have unilateral rights in directing the relevant
activities of Entity A’s rights are considered protective rights.
B. Entity A has the right to direct the relevant activities of Entity B but only in
accordance with the directives of Entity C.
C. Entity A’s right to direct Entity B’s relevant activities is exercisable only upon
the occurrence of a contingency.
D. Entity A holds a 30-day forward contract to buy a majority of Entity B’s voting
rights. The contract can be cancelled in a shareholders meeting. A shareholders
meeting will be held in 3 months’ time.

8. In which of the following instances does Entity A have control over Entity B?
A. Entity A holds a majority of the shares of Entity B. The major holdings entitle
Entity A to voting rights that relate solely to administrative tasks.
B. Entity A holds 90% interest in Entity B. Entity A’s interest in the earnings of
Entity B is fixed at 10% of the aggregate par value of Entity A’s shareholdings
C. Entity A holds majority of the shares of Entity B and is entitled to a variable
return on Entity B’s shares. The relevant activities of Entity B are directed by a
third party unrelated to Entity A.
D. Entity A is the ultimate boss of Entity B. Entity A makes all the major decisions
and earns profit the most if Entity B earns profit, but suffers the most if Entity
B incurs loss.

9. One of the essential elements of control is power. According to PFRS 10, an investor has
power if
A. The investor holds more than half of the outstanding shares of the investee
B. The investor has existing rights that give it the current ability to direct the
investee’s relevant activities.
C. The investor’s interest in the earning the earnings of the investee is not fixed
but rather varies depending on the level of the earnings.
D. The investor’s Kelly is bad.

10. Which of the following is not an element of control?

A. Power
B. Exposure, or rights, to variable returns
C. Major holdings
D. Ability to affect return
 Problem Solving

1. On January 1, 2022, the Lakers Co. acquired 60% interest in Nets Co. for $300,000.00.
The financial statements of Lakers Co. and Nets Co. right after the business combination
follows.

Lakers Co. Nets Co. Nets Co.

CA CA FV
Cash 80,000.00 50,000.00 50,000.00
Inventory 400,000.00 120,000.00 80,000.00
Investment in Subsidiary 300,000.00
Land 600,000.00 200,000.00 250,000.00
Total Assets 1,380,000.00 370,000.00 380,000.00

Accounts Payable 200,000.00 80,000.00 80,000.00

Share Capital 1,000,000.00 250,000.00 250,000.00
Retained Earnings 180,000.00 40,000.00 50,000.00
Total Liabilities & Equity 1,380,000.00 370,000.00 380,000.00

NCI is measured under the proportionate share method.

Requirement: Prepare the consolidated statements of financial position on January 1, 20x1

2. On January 1, 2022, Bucks Co. acquired 80% interest in Sixers Co.

Information on Jan. 1, 2022:

 Sixers Co. net identifiable assets have a carrying amount of $960,000 and fair value of
$1,200,000.00. The difference is due to the following inventory (carrying amount,
$160,000.00; fair value, $200,000.00) and building (carrying amount $600,000.00; fair
value, $800,000.00)
 The remaining useful life of the building is 10 years.
 Run measured the NCI at proportionate share
Information on Dec. 31, 2022

Statements of Financial
Position
As at December 31, 2022
ASSETS Bucks Co. Sixers Co.
Cash 1,500,000.00 516,000.00
Accounts Receivables 520,000.00 100,000.00
Inventory 400,000.00 40,000.00
Investment in Subsidiary (at
1,040,000.00 -
cost)
Building, net 1,900,000.00 500,000.00
Total Assets 5,360,000.00 1,156,000.00

Accounts Payable 160,000.00 20,000.00

Share Capital 2,000,000.00 400,000.00
Share Premium 600,000.00 200,000.00
Retained Earnings 2,600,000.00 536,000.00
Total Liabilities & Equity 5,360,000.00 1,156,000.00

Statements of Profit or Loss

For the year ended Dec. 31,
2022
Bucks Co. Sixers Co.
Sales 1,600,000.00 400,000.00
Cost of Goods Sold (400,000.00) (120,000.00)
Gross Profit 1,200,000.00 280,000.00
Depreciation Expense (100,000.00) (100,000.00)
Distribution Costs (260,000.00) (4,000.00)
Profit for the year 840,000.00 176,000.00

There were no dividends declared, no intercompany transactions and no impairments of

goodwill in 2022.
Requirement: Prepare the December 31, 2022 consolidated financial statements.
3. Boston Co. owns 75% interest in Raptors Co. On acquisition date, the carrying amount of
Raptor net identifiable assets was $480,000.00, equal to fair value. Non-controlling interest
was measured using the proportionate share method.

In 2022, Raptors Co. declared $200,000.00 dividends. Selected information on the entities
on December 31, 2022 is shown below:

Statement of Finacial Position Boston Co. Raptor Co.

Share Capital 1,600,000.00 400,000.00
Retained Earnings 560,000.00 240,000.00
Total Equity 2,160,000.00 640,000.00

Statement of Profit or Loss Boston Co. Raptor Co.

Revenues 1,280,000.00 520,000.00
Expenses (480,000.00) (256,000.00)
Dividend Income 150,000.00 -
Profit or Loss 950,000.00 264,000.00

Requirements: Compute for the following:

a. Non-controlling interest in the net assets of the subsidiary as year-end.
b. Consolidated retained earnings at year-end.
c. Consolidated profit for the year broken down into amounts attributable to the
owners of the parent and attributable to non-controlling interest.

4. On January 1, 2022, Bulls Co. acquired 75% interest of Cavaliers Co. for $360,000.00. On
this date, the carrying amount of Cavaliers net identifiable assets was $320,000.00 equal
to fair value. Non-controlling interest was measured using the proportionate share method.

The financial statement of the entities on December 31, 2022 show the following
information:

Bulls Co. Cavaliers Co.

Revenues 600,000.00 160,000.00
Depreciation Expense (80,000.00) (24,000.00)
Other Expenses (64,000.00) (36,000.00)
Gain on Sale of Equipment 24,000.00 -
Profit for the year 480,000.00 100,000.00
 ASSETS Bulls Co. Cavaliers Co.
Investment in Subsidiary (at cost) 360,000.00 -
Equipment - net 800,000.00 380,000.00
Other Assets 400,000.00 90,000.00
Total Assets 1,560,000.00 470,000.00

LIABILITIES & EQUITY Bulls Co. Cavaliers Co.

Liabilities 140,000.00 50,000.00
Share Capital 1,200,000.00 200,000.00
Retained Earnings 220,000.00 220,000.00
Total Liabilities & Equity 1,560,000.00 470,000.00

Additional information:
 No dividends were declared by either entity during 2022.
 On January 1, 2022, Bulls Co. sold equipment with historical cost of $240,000.00 and
accumulated depreciation $144,000.00 to Cavaliers Co. for $120,000.00. Bulls Co. has
been depreciating this equipment over a useful life of 10 years using the straight-line
method. Cavaliers Co. decided to continue this accounting policy and depreciate the
equipment over its remaining useful life of 4 years.
Requirement:
A. Solve for the carrying amount of the equipment sold by Bulls Co. to Cavaliers Co. in
the consolidated financial statements?
B. How much is the consolidated Equipment-net?
C. How much is the consolidated Depreciation Expense?
D. Prepare consolidated statement of financial position and consolidated statement of
profit or loss.