Certificate in International Financial Reporting Consolidation and Group Accounts 3 — Questions and Answers
Question 1: Under IFRS 12, what type of information must be disclosed for subsidiaries with material non-controlling interests?
- Summarised financial information including assets, liabilities, revenue, and profit or loss of the subsidiary (Correct answer)
- Only the NCI percentage held
- Full separate financial statements of the subsidiary
- The subsidiary's credit rating
Correct answer: Summarised financial information including assets, liabilities, revenue, and profit or loss of the subsidiary
IFRS 12 requires summarised financial data for subsidiaries with material NCI to help users assess the impact.
Question 2: Under IFRS 3, a bargain purchase (negative goodwill) arises when:
- The fair value of net identifiable assets exceeds the consideration transferred plus NCI (Correct answer)
- The consideration paid is less than book value of net assets
- The acquiree has losses carried forward
- The fair value of liabilities exceeds assets acquired
Correct answer: The fair value of net identifiable assets exceeds the consideration transferred plus NCI
Negative goodwill occurs when the acquiree's net fair value exceeds what was paid, creating a gain.
Question 3: Under IFRS 10, a subsidiary acquired during the year is consolidated from:
- The date on which the acquirer obtains control (Correct answer)
- The beginning of the financial year
- The date the sale agreement was signed
- The date regulatory approval was received
Correct answer: The date on which the acquirer obtains control
IFRS 10 requires consolidation from the date control is obtained, not from the year start or signing.
Question 4: Under IAS 21, the functional currency of an entity is:
- The currency of the primary economic environment in which the entity operates (Correct answer)
- The currency in which it reports to shareholders
- The currency of its parent company
- The currency of its major customers
Correct answer: The currency of the primary economic environment in which the entity operates
IAS 21 defines functional currency by the primary economic environment—typically where cash is generated and spent.
Question 5: Under IAS 21, when a foreign subsidiary is translated into the parent's presentation currency using the closing rate method, exchange differences are recognised in:
- Other comprehensive income (foreign currency translation reserve) (Correct answer)
- Profit or loss immediately
- Goodwill in the consolidated balance sheet
- Retained earnings of the subsidiary
Correct answer: Other comprehensive income (foreign currency translation reserve)
Translation differences arising from converting a foreign operation are parked in OCI as a translation reserve.
Question 6: Under IAS 27, which method is used to account for investments in subsidiaries in a parent's separate financial statements?
- Either cost method or IFRS 9 fair value method (Correct answer)
- Equity method only
- Proportionate consolidation
- Full consolidation
Correct answer: Either cost method or IFRS 9 fair value method
IAS 27 allows the cost method or IFRS 9 measurement in separate (non-consolidated) financial statements.
Certificate in International Financial Reporting Consolidation and Group Accounts 3
Under IFRS 12, what type of information must be disclosed for subsidiaries with material non-controlling interests?