Certificate in International Financial Reporting Consolidation and Group Accounts 1 — Questions and Answers
Question 1: Under IFRS 10, when does an investor control an investee?
- When it has power over the investee, exposure to variable returns, and ability to use power to affect those returns (Correct answer)
- When it owns more than 50% of voting shares
- When it can appoint the majority of the board
- When it finances more than half the investee's operations
Correct answer: When it has power over the investee, exposure to variable returns, and ability to use power to affect those returns
IFRS 10 defines control through three cumulative elements: power, variable returns, and the link between them.
Question 2: Under IFRS 3, goodwill arising on a business combination is measured as:
- Consideration transferred plus non-controlling interest less fair value of net identifiable assets acquired (Correct answer)
- Purchase price less book value of net assets acquired
- Fair value of the acquiree less par value of shares issued
- Premium paid over market capitalisation
Correct answer: Consideration transferred plus non-controlling interest less fair value of net identifiable assets acquired
IFRS 3 calculates goodwill as consideration + NCI – fair value of net identifiable assets at the acquisition date.
Question 3: Under IFRS 3, identifiable assets acquired and liabilities assumed in a business combination are recognised at:
- Fair value at the acquisition date (Correct answer)
- Carrying amount in the acquiree's books
- Historical cost
- Value in use
Correct answer: Fair value at the acquisition date
IFRS 3 requires all identifiable assets and liabilities to be remeasured to fair value at the acquisition date.
Question 4: Under IFRS 10, non-controlling interests (NCI) in a subsidiary are presented:
- Within equity, separately from the parent's equity (Correct answer)
- As a liability on the consolidated balance sheet
- Outside equity as a mezzanine item
- As deferred income
Correct answer: Within equity, separately from the parent's equity
IFRS 10 requires NCI to be classified as equity but disclosed separately from the controlling interest.
Question 5: Under IAS 28, the equity method is used to account for investments in:
- Associates and joint ventures (Correct answer)
- Subsidiaries only
- All equity investments
- Strategic investments regardless of influence
Correct answer: Associates and joint ventures
IAS 28 requires the equity method for investments in associates (significant influence) and joint ventures.
Question 6: Under IAS 28, significant influence is presumed when an investor holds:
- 20% to 50% of voting power (Correct answer)
- More than 50% of voting power
- More than 10% of ordinary shares
- Any voting rights in the investee
Correct answer: 20% to 50% of voting power
IAS 28 creates a rebuttable presumption of significant influence between 20% and 50% voting rights.
Certificate in International Financial Reporting Consolidation and Group Accounts 1
Under IFRS 10, when does an investor control an investee?