CA Consolidations & Group Accounts 2

Question 1

In a step acquisition where a parent increases ownership from 25% to 80%, how is the previously held 25% interest treated on the acquisition date?

Accepted Answer

It is remeasured at fair value on the acquisition date, with any gain or loss recognized in earnings

Answer

Under ASC 805, when control is obtained in a step acquisition, the previously held equity interest is remeasured at its acquisition-date fair value, and any resulting gain or loss is recognized in net income.

Question 2

When a parent sells a portion of a subsidiary's shares but retains control, how is the transaction accounted for?

Accepted Answer

As an equity transaction with no gain or loss recognized in consolidated net income

Answer

Under ASC 810, partial disposals that do not result in a loss of control are accounted for as equity transactions, with differences between proceeds and the carrying amount of NCI recorded in equity — not income.

Question 3

How are unrealized profits on upstream sales (subsidiary selling to parent) eliminated in consolidation?

Accepted Answer

Eliminated with the effect allocated between NCI and the parent based on ownership percentages

Answer

Unrealized profits on upstream sales are fully eliminated, and the elimination is shared between NCI and the controlling interest in proportion to their respective ownership percentages in the subsidiary.

Question 4

Under the equity method of accounting, how does an investor record its share of an investee's net income?

Accepted Answer

As an increase in the investment account and a credit to investment income

Answer

Under the equity method, the investor records its proportionate share of the investee's net income by debiting the Investment account and crediting Investment Income, reflecting the investor's economic stake.

Question 5

When translating a foreign subsidiary's income statement for consolidation under ASC 830 (current rate method), which exchange rate is used?

Accepted Answer

The weighted-average exchange rate for the reporting period

Answer

Under ASC 830, income statement items are translated using the weighted-average exchange rate for the period, while balance sheet items (except equity) are translated at the closing rate.

(CA) Certified Accountant Practice Test

(CA) Certified Accountant Practice Test

CA Consolidations & Group Accounts 2