IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

200

Wiley lFRS:

Practical Implementation

Guide and Workbook

MULTIPLE-CHOICE QUESTIONS

1. X has control over the compo sition of Y's board

of directors. X owns 49% of Y and is the largest

shareholder. X has an agreement with Z. which owns

10% of Y. whereby Z will always vote in the same

way as X. Can X exercise control over Y?

(a) X cannot exercise control because it owns

only 49% of the voting rights.

(b) X cannot exercise control because it can

control only the makeup of the board and

not necessarily the way the directors vote.

an agreement with Z for the voting rights to

be used in whatever manner X wishes.

(d) X can exercise control because it controls

more than 50% of the voting power. and it

can govern the financial and operating poli–

cies of Y through its control of the board of

directors.

Answer: (d)

2. X owns 50% of Y' s voting shares. The board of

directors consists of six members ; X appoints three of

them an.d Y appoints the other three. The casting vote

at meetmgs always lies with the directors appointed

by X. Does X have control over Y?

(a) No. control is equally split between X and Z.

(b) Yes. X holds 50% of the voting power and

has the casting vote at board meetings in the

event that there is not a majority deci sion.

and therefore does not have control.

(d) No. control can be exercised only through

voting power. not through a casti ng vote.

Answer: (b)

3. Z has sold all of its shares to the public. The

company was formerly a state-owned entity . The na–

tional regulator has retained the power to appoint the

board of directors. An overseas entity acquires 55%

of the voting shares. but the regulator still retains its

power to appoint the board of directors. Who has

control of the entity?

(a) The national regulator.

(b) The overseas entit y.

seas entity.

(d) The board of directors.

Answer: (c)

4.. A has acquired an investment in a subsidiary. B.

with the view to dispose of this investment within six

months. The investment in the subsidiary has been

classified as held for sale and is to be accounted for in

accordance with lFRS 5. The subsidiary has never

been consolidated. How should the investment in the

subsidiary be treated in the financial statements?

(a) Purchase accounting should be used.

(b) Equity accounting should be used.

but IFRS 5 should be used.

(d) The subsidiary should remain off balance

sheet.

Answer: (c)

A manufacturin g group has just acquired a con–

trollin g interest in a football club that is listed on a

stock exchange. The management of the manufactur–

ing gro up wishes to exclude the football club from the

consolidated financial statements on the grounds that

its activities are dissimilar. How should the football

club be accounted for?

(a) The entity should be consolidated as there is

no exemption from consolidation on the

grounds of dissimilar activities.

(b) The entity should not be consolidated using

the purchase method but should be consoli–

dated using equity accounting.

should appear as an investment in the group

accounts.

(d) The entity should not be consolidated; de–

tails should be disclosed in the financial

stateme nts.

Answer: (a)

6.. In the separate financial statements of a parent

entity, inve stments in subsidiaries that are not classi–

fied as held for sale should be accounted for

(a) At cost.

(b) In acco rdance with lAS 39.

(d) Using the equity method.

An swer: (c)

7. Which of the following is

not

a valid condition

that will exempt an entity from preparing consoli–

dated financial statements?

(a) The parent entity is a wholly owned subsidi–

ary of another entity.

(b) The parent entity' s debt or equity capital is

not traded on the stock exchange.

dated financial statements available for pub–

lic use that comply with IFRS.

(d) The parent entity is in the process of filing

its financial stateme nts with a securities

commission .

Answer: (d)

8. Entity X controls an overseas entity Y. Because

of exchange controls. it is difficult to transfer funds

out of the country to the parent entity. X owns 100%

of the voting power of Y. How should Y be accoun ted

for?

(a) It should be excl uded from consolidation

and the equity method should be used.

(b) It should be excluded from consolidation

and stated at cost.

(c)

should be excluded from consolidation

and accoun ted for in accordance with lAS

39.

(d)

is not permitt ed to be excl uded from con–

solidation becau se control is not lost.

Answer: (d)