True, false c. False, true d. False, false The foreign operation may trade profitably, but the investment may be adversely hit by: a. Rise in the foreign currency against that of the parent. Fall in the foreign currency against that of the parent.
Exchange rates remaining the same. An entity started trading in country A, whose currency was the dollar. After several years the entity expanded and exported its product to country B, whose currency was the euro, and conducted business through a branch.
The functional currency should a. Remain the dollar. Change to the euro at the beginning of 20X7. Change to the euro at the end of 20X7. Change to the euro at the end of 20X7 if it is considered that the underlying transactions, events, and conditions of business have changed. Opportunities for performance improvement will more likely come from: a. A review of the realized gains and losses. A review of the unrealized gains and losses. The exchange rate on the day of the transaction is called: a.
The spot rate. The average rate. The closing rate. A rate sometime in the future. The date of the transaction is: a. The date cash is transferred. The date when the transaction is contracted or recognized.
When the transaction is entered into the books of account. The date when the rights or obligations on the contract are settled or discharged. After several years the entity expanded and exported its product to country B, whose currency was the euro. The business was conducted through a subsidiary in country B. The functional currency of the subsidiary is a. The dollar. The euro. Difficult to determine. An entity has a subsidiary that operates in a country where the exchange rate fluctuates wildly and there are seasonal variations in the income and expenditure patterns.
Year-end spot rate. Average for the year. Average of the quarter-end rates. Average rates for each individual month of the year.
An exchange loss will result. An exchange gain will result. Neither gain nor loss will result. Monetary items will be reported: a. Non-monetary items should be reported: a. Exchange differences on monetary items should be: a. Recorded in equity, until the disposal of the net investment.
For a Dependent Foreign Operation, each transaction is entered at: a. Closing rate. Average rate. None of these Adapted For foreign operations, closing rate should be used for: a. Income and expenses. Each transaction.
Assets and liabilities. For foreign operations, the rate of the day of transactions should be used for: a. The opening net investment of the period needs to be restated at the: a. Closing exchange rate. Average exchange rate. Exchange differences arising from changes to equity, such as capital increases or dividends, should: a.
Be transferred to equity. Where there are minority interests relating to foreign undertakings, their share of exchange gains and losses should be: a. Added to the non-controlling interests in the consolidated balance sheet. Inter-company balances should be: a. Transferred to the Holding Company. Eliminated in the separate financial statements c.
Agreed by each party. On disposal of a foreign operation, all exchange differences accumulated in a separate component of equity should be: a. Added to the gain, or loss, on disposal in the income statement. Recognized directly in equity c. In the case of a partial disposal, how much exchange difference should be included in the income statement? Proportionate share. Any of these An entity, whose functional currency is the dollar, has a foreign subsidiary.
The exchange rate at that date was 1. At the date of receipt of the dividend, the exchange rate had moved to 1. The exchange difference arising on the dividend would be treated as follows in the financial statements: a. An entity, whose functional currency is the dollar, purchases machinery from a foreign supplier for 8 million euros on 31 October when the exchange rate was 1.
The closing exchange rate was 1. Which of the following statements are correct? When conversions due to exchange rates leads to disagreement on the trial balance then, which account should be opened? Foreign exchange account c. No account should be opened b. Suspense account d. According to the relevant accounting standard, when assets are bought by foreign branches on different dates how should we account for changes in the exchange rates on those dates?
The rates on the dates of purchase should be used for each asset bought b. A weighted average should be used for the exchange rate c. An average exchange rate should be used to convert d. The exchange rate on the earliest date of purchase should be used Adapted How should monetary asset and liabilities of foreign branches be valued? Using the exchange rate at the date they were incurred b. Using an average rate for the exchange rate c.
Using the exchange rate at the date of the trial balance d. No attempt should be made to convert liquid resources as they will change quickly anyway Adapted A change in the exchange rate of two currencies may not be known as: a. An entity will primarily generate and expend cash in one primary economic environment.
According to PAS 21 The Effects of Changes in Foreign Exchange Rates, at which rate should an entity's non-current assets be translated when its functional currency figures are being translated into a different presentation currency? The historical exchange rate c.
The average rate b. The closing rate d. The spot exchange rate Adapted According to PAS 21 The effects of changes in foreign exchange rates, exchange differences should be recognized either in profit or loss or in other comprehensive income.
Are the following statements about the recognition of exchange differences in respect of foreign currency transactions reported in an entity's functional currency true or false according to PAS 21? Any exchange difference on the settlement of a monetary item should be recognized in profit or loss. Any exchange difference on the translation of a monetary item at a rate different to that used at initial recognition should be recognized in other comprehensive income.
The central bank of Country X buys and sells its own currency to ensure that the currency is always exchanged in a ratio of with the currency of Country Y. What can we conclude about these two currencies? Country X is using the euro. Country X has pegged its currency to the currency of Country Y. Country X has an undesirable currency. Country X allows its currency to float relative to the currency of Country Y. What is the proper treatment of unrealized foreign exchange gains?
They should be deferred on the statement of financial position until cash is received. The principle of conservatism requires that they should never be recognized.
They should not be recorded until cash is received and the exchange transaction is completed. They should be recognized in profit or loss on the date the exchange rate changes. Foreign operations that are an integral part of the operations of the entity would have the same functional currency as the entity. Where a foreign operation functions independently from the parent, the functional currency will be a.
That of the parent. That of the country of incorporation. The same as the presentation currency. Adapted Chapter 21 - Suggested answers to review theory questions 11 21 31 41 51 1. Relevant rates are shown below: Dec. The delivery of the goods sold is due on January 15, 20x1.
If ABC Co. Fair value Fair value of of forward firm Spot Forwar contract commitment Date price d price asset liability Oct. The forward contract will be settled net on January 15, 20x2. Relevant prices per kilogram of potatoes are shown below: Dec. The following are the relevant exchange rates: Date Spot rate Forward rate Oct. This difference will be amortized as interest expense using the effective interest method. The quoted prices per ounce of silver are as follows: Dec. How much is the derivative asset liability as of December 31, 20x1?
How much is the total net effect of the derivative on the 20x1 and 20x2 profit or loss? Gain loss a. How much is the net settlement on February 1, 20x2? To protect the fair value of its inventory against a potential decline in prices, ABC Co.
We will assume that the fair values shown below already reflect costs to sell. How much is the adjustment to the inventory account on December 31, 20x1? Increase decrease a. How much is the gain loss on the futures contract on February 1, 20x2? How much is the total net cash receipt payment on the two contracts?
Information on fair values is as follows: Dec. How much is the net settlement on the derivative instrument on February 1, 20x2? How much gross profit from sales is recognized on February 1, 20x2? Information on market values is shown below: Dec. How much is the firm commitment asset liability on December 31, 20x1?
How much is the derivative asset liability on December 31, 20x1? How much is the sale revenue recognized on February 1, 20x2? How much gain loss from firm commitment is recognized on February 1, 20x2? How much is the net cash settlement on the derivative instrument on February 1, 20x2? Because ABC Co. Relevant prices per kilogram of commodity are shown below: Broccoli Cauliflower Jan. What is the percentage of effectiveness of the hedging instrument on March 31, 20x1 and June 30, 20x1, respectively?
March 31, 20x1 June 30, 20x1 a. How much is derivative asset liability on March 31, 20x1? How much is the effective portion of the change in fair value of derivative recognized in other comprehensive income on March 31, 20x1? How much is the ineffective portion of the change in fair value of derivative recognized in profit or loss on March 31, 20x1? As of March 31, 20x1, the effect of the futures contract is referred to as a.
How much is the debit to inventory on June 30, 20x1? How much is the effective portion of the change in fair value of derivative recognized in other comprehensive income on June 30, 20x1? How much is the ineffective portion of the change in fair value of derivative recognized in profit or loss on June 30, 20x1? How much is the net cash settlement receipt payment on the derivative instrument on June 30, 20x1?
How much is the total net effect of the hedging instrument on profit or loss? Favorable unfavorable a. If all of the inventory purchased were sold on July 15, 20x1, how much is the cost of goods sold? How much is the gain loss on the put option on December 31, 20x1?
How much is the net gain loss on the exercise of the put option on January 15, 20x1? How much is the gain loss on the put option on January 15, 20x1? The call option expires on July 1, 20x1. The market price of the XYZ, Inc. How much is the gain loss on the call option on June 30, 20x1 arising from change in intrinsic value? How much is the gain loss on the call option on June 30, 20x1 arising from change in time value?
How much is the net cash settlement receipt payment on the call option on July 1, 20x1? The following information was determined: Fair value Time value Date Spot rate of of option a option a Oct. They are provided in order to simplify the problem. How much derivative asset liability is recognized on October 1, 20x1? The hedging instrument is most likely designated as a a. The effective portion of the hedge recognized in other comprehensive income on December 31, 20x1 is a. How much derivative asset liability is recognized on December 31, 20x1?
The effective portion of the hedge recognized in other comprehensive income on April 1, 20x2 is a. The adjusted sale revenue recognized on April 1, 20x2 is a. As protection from possible fluctuations in current market rates, ABC Co. Under the agreement, ABC Co. The interest rate swap will be settled net on maturity date.
The following are the current market rates: Jan. How much is the derivative gain loss recognized in profit or loss on December 31, 20x1? The net cash settlement on the interest rate swap on December 31, 20x2 is — Receipt payment a. The interest expense recognized in profit or loss in 20x2 is a. Swap payments shall be made at each year-end. The net cash settlement on December 31, 20x1 is a. The derivative asset liability on December 31, 20x1 is a.
The net cash settlement receipt payment on December 31, 20x2 is a. The balance of accumulated OCI recognized on the hedging instrument as of December 31, 20x2 is — Debit credit a. The derivative asset liability on December 31, 20x2 is a. How much is the derivative gain loss recognized in OCI on December 31, 20x2? The interest expense recognized in 20x3 is a.
Thus, ABC Co. Unrealized gain loss on the derivative instrument recognized in profit or loss on December 31, 20x1 is a. Unrealized gain loss on the hedged item recognized in profit or loss on December 31, 20x1 is a. The interest expense recognized in 20x2 is a. Unrealized gain loss on the derivative instrument recognized in profit or loss on December 31, 20x2 is a. Unrealized gain loss on the hedged item recognized in profit or loss on December 31, 20x2 is a. Alla breve.
Sonata No. Engraving files MuseScore 2. Il pastor fido, Op. Naxos Javascript not enabled. Accompaniments Sonata No. Which of the following accounting methods must be applied to all business combinations under PFRS 3 Business Combinations?
Pooling of interests method. Acquisition method. Equity method. Purchase method. At the date of acquisition the deferred tax assets were , On January 1, 20x1, the directors considered that realization of the deferred tax assets were not probable. What effect would this decision have on the allocation of the purchase price? The unrecognized deferred tax would be allocated to goodwill, which would increase by , The value of goodwill would decrease by , There would be no effect on goodwill.
Negative goodwill of , would arise. A parent entity is acquiring a majority holding in an entity whose shares are dealt in on a recognized market. Under PFRS 3 Business Combinations, which of the following measurement bases may be used in measuring the non- controlling interest at the acquisition date? The nominal value of the shares in the acquiree not acquired II. The fair value of the shares in the acquiree not acquired III.
The non-controlling interest in the acquiree's assets and liabilities at book value IV. The non-controlling interest in the acquiree's assets and liabilities at fair value a. II only b. II and IV d.
IV only Adapted. True, Falsed. The consideration was estimated to include a control premium of 24 million. Goodwill should be measured at 32 million if the non-controlling interest is measured at its share of PIERCE's net assets.
Goodwill should be measured at 34 million if the non-controlling interest is measured at fair value. PFRS 3 requires all identifiable intangible assets of the acquired business to be recorded at their fair values.
Many intangible assets that may have been subsumed within goodwill must be now separately valued and identified. Under PFRS 3, when would an intangible asset be identifiable? When it meets the definition of an asset in the Conceptual Framework document only.
When it meets the definition of an intangible asset in PAS 38, Intangible Assets, and its fair value can be measured reliably. If it has been recognized under local generally accepted accounting principles even though it does not meet the definition in PAS Where it has been acquired in a business combination. Which of the following examples is unlikely to meet the definition of an intangible asset for the purpose of PFRS 3?
Marketing related, such as trademarks and internet domain names. Customer related, such as customer lists and contracts.
Technology based, such as computer software and databases. Pure research based, such as general expenditure on research. An intangible asset with an indefinite life is one where a. There is no foreseeable limit on the period over which the asset will generate cash flows. The length of life is over 20 years.
The directors feel that the intangible asset will not lose value in the foreseeable future. There is a contractual or legal arrangement that lasts for a period in excess of five years.
An intangible asset with an indefinite life is accounted for as follows: a. No amortization but annual impairment test. Amortized and impairment tests annually. Amortize and impairment tested if there is a trigger event. Amortized and no impairment test. An acquirer should at the acquisition date recognize goodwill acquired in a business combination as an asset.
Goodwill should be accounted for as follows: a. Recognize as an intangible asset and amortize over its useful life. Write off against retained earnings. Recognize as an intangible asset and impairment test when a trigger event occurs. Recognize as an intangible asset and annually impairment test or more frequently if impairment is indicated.
If the impairment of the value of goodwill is seen to have reversed, then the company may a. Reverse the impairment charge and credit income for the period. Reverse the impairment charge and credit retained earnings.
Not reverse the impairment charge. Reverse the impairment charge only if the original circumstances that led to the impairment no longer exist and credit retained earnings.
On acquisition, all identifiable assets and liabilities, including goodwill, will be allocated to cash-generating units within the business combination. Goodwill impairment is assessed within the cash-generating units.
If the combined organization has cash-generating units significantly below the level of an operating segment, then the risk of an impairment charge against goodwill as a result of PFRS 3 is a.
Significantly decreased because goodwill will be spread across many cash- generating units. Significantly increased because poorly performing units can no longer be supported by those that are performing well.
Likely to be unchanged from previous accounting practice. Likely to be decreased because goodwill will be a smaller amount due to the greater recognition of other intangible assets. The management of an entity is unsure how to treat a restructuring provision that they wish to set up on the acquisition of another entity. Under PFRS 3, the treatment of this provision will be a.
A charge in the income statement in the postacquisition period. To include the provision in the allocated cost of acquisition. To provide for the amount and, if the provision is overstated, to release the excess to the income statement in the postacquisition period. To include the provision in the allocated cost of acquisition if the acquired entity commits itself to a restructuring within a year of acquisition. When should MIME perform its second impairment testing on its goodwill? For purposes of impairment testing, PAS 36 a.
By December 31, 20x1, the initial allocation of goodwill is not yet completed. Which of the following is incorrect regarding the accounting for business combinations in accordance with PFRSs?
Any goodwill recognized on acquisition date should be allocated to the acquirers CGUs prior to the end of the year of acquisition. If allocation is incomplete prior to the end of the year of acquisition, the allocation should be completed prior to the end of the immediately preceding year. PFRS 3 requires the use of the acquisition method in accounting for business combination.
Goodwill is computed as the difference between the consideration transferred and the acquisition-date fair value of net identifiable assets acquired. In applying the acquisition method, PFRS 3 requires that the acquirer should be identified. Goodwill must not be amortized under PFRS 3. The transitional rules do not require restatement of previous balances written off. Those acquisitions selected by the entity.
All acquisitions from the date of the earliest. Only past and present acquisitions of entities that have previously and currently prepared their financial statements using PFRS. PFRS 3 is mandatory for all new acquisitions from March 31, Entities have to cease the amortization of goodwill arising from previous acquisitions.
The balance of goodwill arising from those acquisitions is a. Written off against retained earnings. Written off against profit or loss for the year.
Tested for impairment from the beginning of the next accounting year. Tested for impairment on March 31, Which of the following factors is used as multiplier of super profits in valuation of goodwill of a business? Average capital employed in the business d. Normal rate of return b. Simple profits e. Normal profits. Number of years purchase Adapted. Chapter 15 - Suggested answers to theory of accounts questions 1.
The financial statements of ABC Co. XYZ, Inc. Cash 40, 20, Accounts receivable , 48, Inventory , 92, Equipment , , Accumulated depreciation 80, 40, Total assets 1,, , Accounts payable 80, 24, Bonds payable , - Share capital , , Share premium , - Retained earnings , 96, Total liabilities and equity 1,, , How much is the consolidated total assets as of January 1, 20x1?
How much is the consolidated total equity as of January 1, 20x1? On acquisition date, ABC Co. XYZs shareholders equity as of January 1, 20x1 comprises the following: at carrying amounts Share capital , Retained earnings 96, Total equity , There were also no inter-company transactions.
The group determined that there is no goodwill impairment. Sales 1,, , Cost of goods sold , , Gross profit , , Depreciation expense , 40, Distribution costs , 72, Interest expense 12, - Profit for the year , 80, How much is the consolidated profit for 20x1? How much is the consolidated total assets as of December 31, 20x1? How much is the consolidated total equity as of December 31, 20x1? Fair value decrement Use the following information for the next two questions: Popo Co.
The following information was determined at acquisition date: Momo Popo Co. Momo Co. Carrying Carrying Fair amount amount value Equipment 4,, 2,, 1,, Accumulated depreciation , , , Net 3,, 1,, 1,, How much is the consolidated equipment net in the December 31, 20x2 financial statements? The consolidation journal entry for the depreciation of the fair value adjustment on December 31, 20x2 includes a.
Fair value increment 3. On January 1, 20x1, Donkey Co. At that time, Monkeys equipment has a carrying amount of , and a fair value of , The equipment has a remaining useful life of 10 years. On December 31, 20x2, Donkey and Monkey reported equipment with carrying amounts of 2,, and 1,,, respectively. Owl elected to value NCI at fair value. Owlets net identifiable assets approximated their fair values at acquisition date. The acquisition resulted in a goodwill attributable to NCI of 40, Since the acquisition date, Owlet has made accumulated profits of , There have been no changes in Owlets share capital since acquisition date.
The group determined that goodwill has been impaired by 32, Owlet Co. Total assets 4,, 2,, Total liabilities , , Share capital 1,, , Retained earnings 2,, 1,, Total liabilities and 4,, 2,, equity. How much is the fair value assigned to NCI at date of acquisition? How much is the goodwill to be presented in the current-year consolidated financial statements? How much is the NCI in net assets?
How much is the consolidated retained earnings? How much is the consolidated total assets? How much is the consolidated total equity? At this time, Cockerel's net identifiable assets have a carrying amount of , which approximates fair value.
NCI was assigned a fair value of , During 20x1, Rooster sold goods to Cockerel for ,, having bought them for , A quarter of these goods remain unsold at year-end. Goodwill on acquisition of Cockerel has been tested for impairment and found to be impaired in total by 32, for the current year. The individual statements of profit or loss and other comprehensive income of the entities for the year ended December 31, 20x1 are shown below: Rooster Co.
Cockerel Co. Revenue 4,, 2,, Cost of sales 1,, 1,, Gross profit 2,, 1,, Dividend income from Cockerel Co. How much is the consolidated sales?
How much is the consolidated cost of sales? How much is the consolidated profit? How much is the consolidated comprehensive income? How much is the profit attributable to owners of the parent and NCI, respectively? Owners of Parent NCI a. How much is the comprehensive income attributable to owners of the parent and NCI, respectively?
Acquisition during the year Use the following information for the next four questions: On September 1, 20x1, Pig Co. At this time, Piglet's net identifiable assets have a carrying amount of , which approximates fair value. During the last month of the year, Piglet sold goods to Pig for , One-third of these goods remain unsold at year-end. The group assessed that there is no impairment loss on goodwill for the current year. The individual statements of profit or loss of the entities for the year ended December 31, 20x1 are shown below: Pig Co.
Piglet Co. Revenue 4,, 2,, Cost of sales 1,, 1,, Gross profit 2,, 1,, Distribution costs , Administrative costs , , Profit before tax 1,, 1,, Income tax expense , , All of Piglets income and expenses including profit from inter-company sale were earned and incurred evenly during the year. Subsidiarys outstanding cumulative preference shares Bear Co.
Cub Co. The carrying amount of Cubs net identifiable assets at acquisition date approximates fair value. Bear and Cub reported individual profits of , and ,, respectively, for the year ended December 31, 20x1. Neither company declared dividends. There are 3-year dividends in arrears on the outstanding cumulative preference shares of Cub Co. It was assessed that goodwill is not impaired. XYZs shareholders equity as of January 1, 20x1 comprises the following: at carrying amounts Share capital , Retained earnings 96, Total equity , On January 1, 20x1, the fair values of the assets and liabilities of XYZ, Inc.
A value of 75, is assigned to the non-controlling interest. XYZs net identifiable assets have a fair value of , Goodwill has been computed under each of the available options under PFRS 3 as follows:. If NCI is measured at proportionate share, how much is the gain or loss on the transaction to be recognized in the consolidated financial statements?
If NCI is measured at fair value, how much is the gain or loss on the transaction to be recognized in the consolidated financial statements? If NCI is measured at proportionate share, what is the effect of the transaction on the consolidated financial statements? No effect on the consolidated financial statements. If NCI is measured at fair value, what is the effect of the transaction on the consolidated financial statements? If NCI is measured at proportionate share, what is the direct adjustment in equity?
If NCI is measured at fair value, what is the direct adjustment in equity? Loss of control Deconsolidation The acquisition resulted to goodwill of 12, There has been no impairment of goodwill. The remaining investment in XYZ, Inc. The statements of financial position immediately before the sale are shown below:.
How much is the gain loss on the disposal of controlling interest? Loss of control Derecognition of OCI Accordingly, goodwill of 12, was recognized on the business combination. Subsequent to acquisition date, XYZ, Inc. The movement in XYZs net assets is shown below:.
Net assets at fair value - Jan. How much is the gain or loss on disposal of controlling interest to be recognized in profit or loss?
Inter-company receivables and payables Use the following information for the next two questions: On January 1, 20x1, Dad Co. The following information was determined immediately before the acquisition: Dad Co. Son Co. Carrying amount Carrying amount Fair value Total assets 4,, 1,, 1,, Total liabilities 2,, , , Net assets 1,, , , Included in Sons liabilities is an account payable to Dad amounting to 80, Dad elected to measure NCI as its proportionate share in Sons net identifiable assets.
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