IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley IFRS: Practical Implementation Guide and Workbook

MULT1PL E·CHOICE QUESTIONS 1. A joint venture is exempt from using the equity method or proportionate consolidation in certain cir– cumstances. Which of the following circumstances is not a legitimate reason for not using the equity method or proportionate consolidation? (a) Where the interest is held for sale under IFRS 5. (b) Where the exception in lAS 27 applies re– garding an entity not being required to pre– sent consolidated financial statements. (c) Where the venturer is wholly owned, is not a publicly traded entity and does not intend to be, the ultimate parent produces consoli– dated accounts, and the owners do not object to the nonusage of the accounting methods. (d) Where the joint venture ' s activities are dis- similar from those of the parent. Answer: (d) 2. In the case of a jointly controll ed operation, a venturer should account for its interest by (a) Using the equity method or proportionate consolidation. (b) Recognizing the assets and liabilities, ex– penses and income that relate to its interest in the joint venture. (c) Showing its share of the assets that it jointly controls, any liabilities incurred joi ntly or severally, and any income or expense relat– ing to its interest in the joi nt venture. (d) Using the purchase method of accounting. Answer: (b) 3. In the case of jo intly controlled assets, a venturer should acco unt for its interest by (a) Using the equity method or proportionate consolidation. (b) Recognizing the assets and liabilities, ex– penses and income that relate to its interest in the jo int venture. (c) Showing its share of the assets that it jointly controls, any liabilities incurred jointly or severally, and any income or expense relat– ing to its interest in the joint venture. (d) Using the purchase method of accounti ng. Answer: (c) 4. In the case of jointly controlled entities, a ven– turer should account for its interest by (a) Using the equity method or proportionate consolidation. (b) Recognizing the assets and liabilities, ex– penses and income that relate to its interest in the joint venture. (c) Showing its share of the assets that it jointly controls, any liabilities incurred joi ntly or severally, and any income or expense relat– ing to its interest in the joint venture. (d) Using the purchase method of accounting. Answer: (a)

5. The exemption from applying the equity method or proportionate consolidation is available in the fol– lowing circumstances: (a) Where severe long-term restrictions impair the ability to transfer funds to the investor. (b) Where the interest is acquired with a view to resale within twelve months. (c) Where the activities of the venturer and j oint venture are dissimilar. (d) Where the venturer does not exert signifi– cant influence. Answer: (b) ~. Under proportionate conso lidation, the minority mterest 10 the venture is (a) Shown as a deduction from the net assets. (b) Shown in the equity of the venturer. (c) Shown as part of long-term liabilities of the venturer. (d) Not included in the financial statement s of the venturer. Answer: (d) 7. A company has a 40% share in a joint venture and loans the venture $2 million. What figure will be shown for the loan in the balance sheet of the ven– turer? (a) $2 million. (b) $800,000 (c) $1.2 million. Cd) Zero. Answer: (e)