Question

True or false:

A) Any inter-company indebtedness between the associate company and its parent must be cancelled out on consolidation

B) IAS 38 states that recognized intangible non-current assets should be recognized at cost less accumulated amortization and may not be revalued

2. Company A Ltd and company B ltd enter into an agreement where A manufactures the tennis balls and B manufactures the strings and assembles the racquet. Each uses its own assets and is responsible for paying its own expenses. Profit from the sale of the racquets are shared between the two companies and the ratio is reviewed annually. This is:

a) a jointly controlled operation

b) a joint venture

c) jointly controlled assets

Answer 1

1.

A) True

Intercompany elimination refers to the process for removal of transactions between companies included in a group in the preparation of consolidated accounts. The process of intercompany elimination is helpful in managing eliminations of operations among companies within a single group

B) Intangible assets are measured initially at cost. After initial recognition, an entity usually measures an intangible asset at cost less accumulated amortisation. It may choose to measure the asset at fair value in rare cases when fair value can be determined by reference to an active market

  

2.

In Jointly controlled operations involve the use of assets and other resources of the venturers rather than the establishment of a separate entity. Each venturer uses its own assets, incurs its own expenses and liabilities, and raises its own finance.

Therefore the treatment of company A and company B would be treated as jointly controlled operation