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Answers to supplementary objective test questions

14.4 B

Blob group consists of a directly controlled subsidiary, Thing (80% owned), an
indirectly controlled sub-sub, Fly (with an effective shareholding of 80% × 80%
= 64%) and an associate, Stuff.

Subsidiaries and sub-subsidiaries are controlled by the parent. As a result,
100% of the sub and sub-sub’s assets and liabilities are consolidated.

Associates are equity accounted. No addition of an associates assets and
liabilities arise.

Inventory = 278 + 82.5 + 150 = 510.5

CHAPTER 15 – CHANGES IN GROUP STRUCTURE

15.1 C

MK originally owns 15% of the shares of RG. MK has acquired a further 60% in
RG. This is a step-acquisition that achieves control. RG is now a subsidiary with
a shareholding of 75%.

A step-acquisition that achieves control is treated as if the original shareholding
(15% in this case) had been disposed. The investment will be revalued to fair
value and gains or losses will be recognised within profit or loss. The gain totals
$285,000 – $100,000 = $185,000. This is recorded in profit or loss and NOT
equity.

RG is only a subsidiary from the 30th June 20X8. This means that 100% of the
income and expenses are consolidated from the date of control of 30th June
20X8. Six months of the income and expenses are 100% consolidated.

The shareholding in RG at the year-end is 75%. NCI = 25%.

Goodwill is calculated, for a step acquisition that achieves control, as if the
parent has acquired the entire shareholding in one transaction as at the step-
acquisition date (in this case, 30th June 20X8). The cost of investment is
calculated as the cost of the 60% + the fair value of the 15% = $1,360,000 +
$285,000 = $1,645,000.

501