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Answers to supplementary objective test questions

13.5 D

To have joint control, a legal contract must exist and authorisation of decisions
must require unanimous voting by the venturers. Therefore, no individual
venturer can dominate the decision-making of the jointly controlled entity (JCE).
All venturers must agree on the decisions made.

No addition of the assets and liabilities of a JCE will occur in the group
accounts. JCE’s are accounted using equity accounting. The statement of
financial position includes within non-current assets an “Investment in JCE”.
The statement of profit or loss includes the share of the JCE’s total
comprehensive income for the year. Option A is incorrect

Equity accounting is used when significant influence is exerted (associates) and
if joint control occurs (JCE’s). Option B is therefore false.

Legal contracts must exist between shareholders to treat an investment as a
JCE. Shareholders who happen to own greater than 50% of the shares of an
entity between them do not have joint control unless a legal contract is drafted
and signed confirming the joint control relationship. Option C is incorrect.

CHAPTER 14 – COMPLEX GROUP STRUCTURES

14.1 C

Impairment of a sub-sub would reduce EMS’s goodwill and group retained
earnings.

Intergroup trading at a profit will only cause PUP adjustments if the goods are
left in the group at year end. No PUP adjustment is necessary for the sales from
BMH to EMS as no goods remain in stock.

Fair value (FV) adjustments will only impact retained earnings of the group if the
FV adjustment requires extra depreciation. Land is not depreciated so no further
depreciation is necessary. Therefore, no impact to group retained earnings
(RE) is required.

IHA’s will impact goodwill and NCI calculations. RE is unaffected.

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