Financial Accounting and Reporting Flashcards

A parent company owns 80% of a subsidiary. The subsidiary reports profit after tax of £100,000. In the consolidated statement of comprehensive income, what amount is shown as the non-controlling interest (NCI) share of profit?

Answer: £20,000

The non-controlling interest represents the 20% of the subsidiary not owned by the parent. NCI share of profit = 20% × £100,000 = £20,000. The full £100,000 profit is included in consolidated revenue and expenses, but £20,000 is then allocated to NCI in the income statement.

Under FRS 102, when should an entity recognise a contingent liability?

Answer: As a disclosure in the notes to the financial statements only (not recognised in the statement of financial position)

Under FRS 102 Section 21, a contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events. It is not recognised in the financial statements but is disclosed in the notes unless the possibility of an outflow is remote.

In a consolidated statement of financial position, how is goodwill arising on acquisition calculated under FRS 102?

Answer: Fair value of consideration paid minus the fair value of the subsidiary's identifiable net assets acquired

Under FRS 102 Section 19, goodwill on acquisition = Fair value of consideration transferred (plus NCI at proportion of net assets, if applicable) minus the fair value of the subsidiary's identifiable net assets at the acquisition date. Goodwill represents the premium paid for factors such as brand value, customer relationships, and synergies.

Under FRS 102, what is the maximum useful life over which goodwill must be amortised if the entity cannot make a reliable estimate?

Answer: 5 years

Under FRS 102 Section 19, if the useful life of goodwill cannot be reliably estimated, it is presumed to be 5 years. Goodwill must be amortised over its useful life (unlike full IFRS where goodwill is tested annually for impairment rather than amortised).

A company holds an investment property under FRS 102. How should it be measured at each reporting date?

Answer: At fair value, with changes in fair value recognised in profit or loss

Under FRS 102 Section 16, investment property whose fair value can be measured reliably without undue cost or effort must be measured at fair value at each reporting date, with changes recognised in profit or loss. If fair value cannot be determined reliably, the cost model under Section 17 is used instead.

Which of the following transactions would be eliminated on consolidation when preparing group financial statements?

Answer: Intra-group sales from the parent to the subsidiary

Intra-group transactions must be eliminated on consolidation under FRS 102 Section 9 to avoid double-counting. These include intra-group sales, intra-group loans, and intra-group dividends. The consolidated financial statements should present the group as if it were a single economic entity, so only transactions with external parties are shown.