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Supplementary objective test questions

13.4 Van Ltd acquired 75% of the 2m ordinary shares of Dam Ltd via a combination
of consideration methods.

Van paid $1,000,000 cash on the day of the acquisition, 1st Jan 20X6. Van will
also issue, in one year’s time, 1 new share in Van for every 10 purchased in
Dam. The market value of a Van share on the acquisition date was $3.35. The
share price had risen to $4.45 by the reporting date.

A further $500,000 payment will be made to the shareholder of Dam conditional
upon Dam’s profits increasing by an average of 10% over the next 2 years. The
present value of the $500,000 payment in 2 years, discounted at market interest
rates, is $375,000. The fair value of the payment was assessed to be $200,000
as at the acquisition date.

What is the consideration that will be used within the calculation of Dam’s
goodwill?

A $1,702,500

B $1,877,500

C $2,002,500

D $2,042,500

13.5 Which of the following statements is true?

A A jointly controlled entity’s assets and liabilities will be consolidated into
the group statement of financial position on a % ownership basis.

B Significant influence must be exerted on any investment that uses equity
accounting.

C Any groups of 2 -10 shareholders who collectively own more than 50% of
the ordinary capital of an entity, have joint control in that entity through
their combined shareholdings. The shareholders must treat their
investment as a jointly controlled entity.

D The adoption of strategies suggested by individual venturers within a
jointly controlled entity is never guaranteed. In turn, the jointly controlled
entity will never adopt strategies that an individual venturer is
wholeheartedly opposed to.

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