Question

In: Accounting

1. How is control determined when a parent company does not own a majority of the...

1.

How is control determined when a parent company does not own a majority of the voting stock of a subsidiary?

Multiple Choice

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Controlling the subsidiary’s financing activities.

Controlling the subsidiary’s investing activities.

Criteria that establish effective control include control of the subsidiary’s senior management or board of directors, the control of the subsidiary’s operating, investing, or financing activities, and the right to obtain control by buying more shares after a triggering event.

Controlling the subsidiary’s operating activities.

2.

How does accounting for bearer plants differ from that for other biological assets?

Multiple Choice

Companies never revalue bearer plants, because of their nature.

Companies treat bearer plants as PPE. Thus, they choose between the cost and revaluation models for these assets. The treatment of bearer plants constitutes an important exception to the requirement that companies revalue biological assets.

Companies always revalue bearer plants, as they are required to do for all other biological assets.

Companies treat bearer plants as goodwill.

3.

Under U.S. GAAP, fixed assets are generally reported on the balance sheet at their:

Multiple Choice

fair value.

historical cost.

market value.

net realizable value.

4.

Which intangible assets are subject to annual impairment testing?

Multiple Choice

Indefinite-lived intangible assets.

Definite-lived tangible assets.

Definite-lived intangible assets.

Indefinite-lived intangibles and goodwill are subject to impairment testing at least annually.

5.

How do IFRS and U.S. GAAP differ in their approach to allowing reversals of inventory write-downs?

Multiple Choice

IFRS requires the reversal of write-downs from cost to net realization value (NRV) when the selling price increases. U.S. GAAP prohibits the reversal of past write-downs.

The cost of the intangibles should be expensed by the acquiring company on the merger date.

If they had not been previously recorded as separate assets by the acquired company, they should always be recorded as "Goodwill" on the balance sheet of the company acquiring them.

They should be recorded as separate intangible assets only if their useful life is indefinite.

Solutions

Expert Solution

Question 1

Answer: - Criteria that establish effective control include control of the subsidiary’s senior management or board of directors, the control of the subsidiary’s operating, investing, or financing activities, and the right to obtain control by buying more shares after a triggering event.

Reason: - Control is not just determined by major shareholding. Corporations can have indirect control on certain entities even without shareholding. This is determined based on the above criteria and consolidated with the parent's statements.

Question 2

Answer: - Companies treat bearer plants as PPE. Thus, they choose between the cost and revaluation models for these assets. The treatment of bearer plants constitutes an important exception to the requirement that companies revalue biological assets.

Reason: - Bearer plants are not sold as it is. They produce agricultural produce. Bearer plants are recognized and reported as described under IAS 16, property plant and equipment. Thus, will include option to choose between cost and revaluation model. Biological assets as you know involves growth and will require to be revalued during different stages of its life.

Question 3

Answer: - historical cost.

Reason: - Fixed asset falls under the definition of PPE and is recorded at its historical cost. This is because they are held for generating cash flow and not for sale.

Question 4

Answer: - Indefinite-lived intangibles and goodwill are subject to impairment testing at least annually.

Reason: -Revaluation is done because a change in value of the asset is expected. Normally Indefinite-lived intangibles and goodwill have high chances of change in carrying value and is therefore subject to impairment testing at least annually.

Question 5

Answer: -IFRS requires the reversal of write-downs from cost to net realization value (NRV) when the selling price increases. U.S. GAAP prohibits the reversal of past write-downs.

Reason: -When selling price increases, IFRS allows for reversal of previous write-downs. But GAAP does not allow any inventory reversal at all.


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