Question

Consolidated Net Income is equal to:

Multiple Choice

• the sum of the net incomes of both the parent and its subsidiaries less any inter-company dividends.

• the parent's net income excluding any income arising from its investment in the Subsidiary, plus the net income of the subsidiary less the amortization of the acquisition differential and the impairment of goodwill.

• the parent's net income excluding any income arising from its investment in the subsidiary.

• the sum of the net incomes of both the parent and its subsidiaries.

Contingent consideration will be classified as a liability when:

Multiple Choice

• it will be paid in the form of cash or another asset.

• it will be paid in the form of additional equity.

• the form of payment will be determined at a future date.

• the acquirer decides the appropriate time to make a payment.

Which consolidation method should be used in preparing consolidated financial statements in accordance with IFRS?

Multiple Choice

• Either identifiable net assets or fair value enterprise method.

• Parent company method.

• New entity method.

• Proportionate consolidation method.

One weakness associated with the fair value enterprise method is that:

Multiple Choice

• non-controlling interest (NCI) is computed using the book values of the subsidiary's net assets.

• non-controlling interest (NCI) is computed using the fair market values of the subsidiary's net assets.

• it is inconsistent with the historical cost principle.

• the implied value based on the parent's acquisition cost may be unrealistic when the parent purchases significantly less than 100% of the subsidiary's voting shares.

Consolidated Net Income would be:

Multiple Choice

• higher if the parent chooses to use the Equity Method rather than the Cost Method, provided that the subsidiary showed a profit.

• lower if the parent chooses to use Equity Method rather than the Cost Method.

• the same under both the Cost and Equity Methods.

• higher if the parent chooses to use Equity Method rather than the Cost Method.

Answer 1

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Consolidated Net Income is equal to:

the parent's net income excluding any income arising from its investment in the Subsidiary, plus the net income of the subsidiary less the amortization of the acquisition differential and the impairment of goodwill.

Contingent consideration will be classified as a liability when:

it will be paid in the form of cash or another asset.

Which consolidation method should be used in preparing consolidated financial statements in accordance with IFRS?

Either identifiable net assets or fair value enterprise method.

One weakness associated with the fair value enterprise method is that:

it is inconsistent with the historical cost principle

Consolidated Net Income would be:

higher if the parent chooses to use the Equity Method rather than the Cost Method, provided that the subsidiary showed a profit.