Certificate in International Financial Reporting Consolidation and Group Accounts 2 — Questions and Answers
Question 1: Under IFRS 11, a joint arrangement is classified as a joint operation when:
- Parties have rights to the assets and obligations for the liabilities of the arrangement (Correct answer)
- Parties have rights to the net assets of the arrangement
- One party has sole control over operations
- The arrangement is structured as a separate vehicle
Correct answer: Parties have rights to the assets and obligations for the liabilities of the arrangement
In a joint operation, each operator recognises its own share of assets, liabilities, revenues, and expenses.
Question 2: Under IFRS 3, acquisition-related costs (e.g., advisory fees) in a business combination are:
- Expensed as incurred (Correct answer)
- Capitalised as part of goodwill
- Added to the cost of investment
- Treated as a fair value adjustment
Correct answer: Expensed as incurred
IFRS 3 requires acquisition costs (legal, advisory fees) to be expensed in the period incurred.
Question 3: Under IFRS 10, intra-group transactions are eliminated on consolidation because:
- Consolidated statements present the group as a single economic entity (Correct answer)
- They create double-counting of assets
- Tax authorities require it
- They represent contingent liabilities
Correct answer: Consolidated statements present the group as a single economic entity
Consolidation eliminates intra-group balances, transactions, and unrealised profits to present the group as one entity.
Question 4: Under IFRS 3, the acquisition method requires the acquirer to be identified based on:
- Which entity obtains control over the other (Correct answer)
- The largest entity by revenue
- The entity that initiates the transaction
- The entity with the most cash paid
Correct answer: Which entity obtains control over the other
The acquirer is the entity that obtains control as defined by IFRS 10.
Question 5: Under IAS 28, when using the equity method, how is an investor's share of a loss recognised when it exceeds the carrying amount of the investment?
- The investor stops recognising further losses unless it has incurred obligations on behalf of the investee (Correct answer)
- The investor continues recognising losses indefinitely
- The investment is written down to zero and a liability recognised for the excess
- Losses are transferred to goodwill
Correct answer: The investor stops recognising further losses unless it has incurred obligations on behalf of the investee
IAS 28 limits equity method losses to the investment's carrying amount (including long-term interests) unless the investor has obligations.
Question 6: Under IFRS 10, when a parent loses control of a subsidiary, it recognises:
- A gain or loss equal to the difference between proceeds received plus fair value of retained interest less the derecognised net assets (Correct answer)
- No gain or loss if shares are retained
- Only the cash proceeds received
- The book value of the subsidiary derecognised
Correct answer: A gain or loss equal to the difference between proceeds received plus fair value of retained interest less the derecognised net assets
IFRS 10 requires recognition of the disposal gain/loss including the fair value of any residual interest retained.
Certificate in International Financial Reporting Consolidation and Group Accounts 2
Under IFRS 11, a joint arrangement is classified as a joint operation when: