Question

QUESTION 1

1. Even though an investee may be an associate of an investor, if the shares of that associate are traded in an active market, AASB128 Investment in Associates and Joint Ventures requires the application of the:

   		market valuation.
   		consolidation method.
   		equity method.
   		valuation made by an independent evaluator.

QUESTION 2

1. Indicia of an investor’s incapacity to exert significant influence over the policy-making decisions of an investee include:

   		the existence of a small group of ‘non-investor’ shareholders representing the majority of voting power in the investee.
   		the investor attempting to gain, but not gaining, board representation.
   		the investor attempting to gain, but not gaining, the financial information necessary to calculate its equity in the fair value of the investee’s net assets at the date of acquisition, or its equity in the post-acquisition earnings of the investee.
   		all of the above.

QUESTION 3

1. The accounting method applied to investments in associates, known as the equity method, is also known as the:

   		significant influence method.
   		multi-line consolidation method.
   		entity method of consolidation.
   		one-line consolidation method.

QUESTION 4

1. Goodwill acquired in an associate is:

   		amortised across its useful life.
   		carried as a separate asset in the accounting records of the investor.
   		written off immediately against the carrying amount of the investment.
   		not subject to amortisation.

QUESTION 5

1. Red Limited acquired a 30% investment in Blue Limited for $1,000,000. Blue declared and paid a dividend of $20,000 during the current year. Red Limited prepares consolidated financial statements. Which of the following is the appropriate entry for Red Limited to record this dividend?

   		DR    Dividends payable                   $6,000                CR                  Cash                                 $6,000
   		DR    Dividend revenue         $6,000                CR                  Investment in associate      $6,000
   		DR    Cash                                        $6,000                CR                  Dividend revenue         $6,000
   		DR    Cash                                           $6,000                CR                  Investment in associate      $6,000

  

Answer 1

1) Even though an investee may be an associate of an investor, if the shares of that associate are traded in an active market, AASB128 Investment in Associates and Joint Ventures requires the application of the Equity Method.

2) Indicia of an investor’s incapacity to exert significant influence over the policy-making decisions of an investee include all of the above.

3) The accounting method applied to investments in associates, known as the equity method, is also known as the one-line consolidation method.

4) Goodwill acquired in an associate is not subject to amortisation.

5) DR    Cash                                           $6,000

               CR                  Investment in associate      $6,000