IFRS Consolidation and Group Accounting 2

Question 1

Under IAS 28, the equity method requires an investor to recognize its share of the associate's post-acquisition profit or loss. Where is this recognized?

Accepted Answer

In the investor's profit or loss

Answer

Under IAS 28, the investor recognizes its share of the associate's profit or loss in the investor's own profit or loss, increasing or decreasing the carrying amount of the investment.

Question 2

Under IFRS 3, how are acquisition-related costs (such as legal and advisory fees) treated?

Accepted Answer

Expensed in the period in which they are incurred

Answer

IFRS 3 requires that acquisition-related costs be expensed as incurred rather than capitalized, as they are not part of the exchange for the acquiree.

Question 3

What is contingent consideration in a business combination under IFRS 3, and how is it initially recognized?

Accepted Answer

Additional purchase price that may be paid depending on future events; recognized at fair value at acquisition date

Answer

IFRS 3 defines contingent consideration as an obligation to transfer additional assets or equity interests if specified future events occur or conditions are met, and it must be recognized at fair value at the acquisition date.

Question 4

Under IFRS 3, when an acquirer obtains control in stages (step acquisition), what happens to the previously held equity interest at the acquisition date?

Accepted Answer

It is remeasured to fair value, with any resulting gain or loss recognized in profit or loss

Answer

In a step acquisition under IFRS 3, the acquirer remeasures its previously held equity interest in the acquiree at the acquisition-date fair value, recognizing any resulting gain or loss in profit or loss.

Question 5

When a parent loses control of a subsidiary, how should the retained investment (if any) be measured under IFRS 10?

Accepted Answer

At fair value at the date control is lost

Answer

Under IFRS 10, upon loss of control any retained interest is remeasured to fair value at the date control is lost, with the resulting gain or loss recognized in profit or loss.

(IFRS) International Financial Reporting Standards Practice Test

(IFRS) International Financial Reporting Standards Practice Test

IFRS Consolidation and Group Accounting 2