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FAC2602 EXAM PACK WITH VERIFIED ANSWERS DETAILED
RATIONALES GRADED A+
FAC2602 Exam Pack
SECTION 1: IFRS 10 – CONTROL & CONSOLIDATED FINANCIAL STATEMENTS (Questions 1–25)
Question 1.
According to IFRS 10, an investor controls an investee when the investor has power over the
investee, is exposed to variable returns, and has the ability to use its power to affect those
returns. Which of the following is NOT a criterion for control under IFRS 10?
A) Power over the investee
B) Exposure or rights to variable returns from involvement with the investee
C) Holding a controlling financial interest of 75% or more
D) Ability to use power over the investee to affect the amount of the investor's returns
Correct Answer: C
Rationale: IFRS 10 sets out three control criteria: power over the investee, exposure/variable
returns, and the ability to use power to affect returns. A 75% interest is not a separate criterion;
control can be achieved at lower levels depending on the dispersion of other shareholdings.
Question 2.
When a parent company does not own 100% of a subsidiary's equity, the portion of the
subsidiary's equity not attributable to the parent is presented in the consolidated statement
of financial position as:
A) Minority expense
B) Non-controlling interest (NCI)
C) Associate interest
D) Parent surplus
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Correct Answer: B
Rationale: Non-controlling interest (NCI), also known as minority interest, represents the equity
in a subsidiary not attributable, directly or indirectly, to the parent. It is presented within equity
in the consolidated statement of financial position.
Question 3.
Which of the following BEST describes a simple group structure in the context of FAC2602?
A) A group formed with more than one subsidiary arranged horizontally
B) A group with only one subsidiary, whether held directly or indirectly
C) A group with a vertical chain of sub-subsidiaries
D) A group where the parent controls multiple sub-subsidiaries
Correct Answer: B
Rationale: A simple group has a parent company with only one subsidiary (direct or indirect),
while complex groups involve multiple subsidiaries arranged in horizontal or vertical structures.
Question 4.
Under IFRS 10, a parent is exempt from preparing consolidated financial statements when
certain conditions are met. Which of the following is a valid exemption condition?
A) The parent's shares are traded on a public stock exchange
B) The parent is a wholly-owned subsidiary and its ultimate or intermediate parent produces
IFRS-compliant consolidated financial statements
C) The parent has fewer than 100 employees
D) The parent operates in a different industry from its subsidiaries
Correct Answer: B
Rationale: Under IFRS 10, a parent may be exempt from presenting consolidated financial
statements if it is a wholly or partially owned subsidiary of another entity and its debt or equity
instruments are not traded in a public market, among other conditions.
Question 5.
The essence of consolidation in group accounting is that the parent is able to control the
financial and operating policies of the subsidiary. This enables the group to be presented as:
A) A tax-compliant entity
B) A single economic unit
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C) A collection of separate legal entities
D) A regulatory reporting entity
Correct Answer: B
Rationale: The essence of consolidation is control: the parent can direct the financial and
operating policies of the subsidiary, enabling the group to be seen and managed as a single
economic unit.
Question 6.
Under IFRS 10, power over an investee arises from existing rights that give the investor the
current ability to direct the relevant activities. Which of the following would MOST likely give
an investor power?
A) Holding 45% of the voting shares in a widely held company with no other large blocks of
shares
B) Holding 10% of the voting shares with no other rights
C) Being a passive investor with no board representation
D) Holding debt that is convertible only in five years
Correct Answer: A
Rationale: Holding 45% of voting shares in a widely held company with no other large blocks
may give de facto control, as the remaining shares are dispersed and the investor may have
practical ability to direct relevant activities.
Question 7.
When a parent sells some of its shares in a subsidiary but retains control, the transaction is
accounted for as:
A) A gain or loss on disposal recognised in profit or loss
B) An equity transaction with no gain or loss in profit or loss
C) A business combination
D) A bargain purchase
Correct Answer: B
Rationale: Changes in a parent's ownership interest in a subsidiary that do not result in loss of
control are accounted for as equity transactions, with adjustments to NCI and parent equity but
no gain or loss recognised in profit or loss.
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Question 8.
If a subsidiary's financial year end differs from that of the parent, how should the
consolidated financial statements be prepared under IFRS 10?
A) The subsidiary must always change its financial year end to match the parent
B) The subsidiary's statements are used as they are with no adjustment
C) The subsidiary prepares financial statements for consolidation purposes as of the same date
as the parent's reporting date
D) The subsidiary's statements are excluded from consolidation
Correct Answer: C
Rationale: To prepare consolidated financial statements, financial information of the parent and
its subsidiaries is drawn up to the same reporting date. If the reporting dates are different, the
subsidiary normally prepares additional financial statements as of the parent's reporting date.
Question 9.
In a parent–subsidiary relationship, what is the PRIMARY purpose of preparing consolidated
financial statements?
A) To comply with tax regulations
B) To present the parent and its subsidiaries as a single economic unit
C) To calculate the parent's profit for dividend distribution
D) To determine individual subsidiary profitability
Correct Answer: B
Rationale: Consolidated financial statements combine the assets, liabilities, equity, income,
expenses, and cash flows of a parent and its subsidiaries into a single set of financial
statements, presenting the group as a single economic entity.
Question 10.
What percentage of voting rights is normally presumed to give an investor control over an
investee under IFRS 10?
A) 20% or more
B) 25% or more
C) 33% or more
D) 50% or more
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FAC2602 EXAM PACK WITH VERIFIED ANSWERS DETAILED
RATIONALES GRADED A+
FAC2602 Exam Pack
SECTION 1: IFRS 10 – CONTROL & CONSOLIDATED FINANCIAL STATEMENTS (Questions 1–25)
Question 1.
According to IFRS 10, an investor controls an investee when the investor has power over the
investee, is exposed to variable returns, and has the ability to use its power to affect those
returns. Which of the following is NOT a criterion for control under IFRS 10?
A) Power over the investee
B) Exposure or rights to variable returns from involvement with the investee
C) Holding a controlling financial interest of 75% or more
D) Ability to use power over the investee to affect the amount of the investor's returns
Correct Answer: C
Rationale: IFRS 10 sets out three control criteria: power over the investee, exposure/variable
returns, and the ability to use power to affect returns. A 75% interest is not a separate criterion;
control can be achieved at lower levels depending on the dispersion of other shareholdings.
Question 2.
When a parent company does not own 100% of a subsidiary's equity, the portion of the
subsidiary's equity not attributable to the parent is presented in the consolidated statement
of financial position as:
A) Minority expense
B) Non-controlling interest (NCI)
C) Associate interest
D) Parent surplus
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Correct Answer: B
Rationale: Non-controlling interest (NCI), also known as minority interest, represents the equity
in a subsidiary not attributable, directly or indirectly, to the parent. It is presented within equity
in the consolidated statement of financial position.
Question 3.
Which of the following BEST describes a simple group structure in the context of FAC2602?
A) A group formed with more than one subsidiary arranged horizontally
B) A group with only one subsidiary, whether held directly or indirectly
C) A group with a vertical chain of sub-subsidiaries
D) A group where the parent controls multiple sub-subsidiaries
Correct Answer: B
Rationale: A simple group has a parent company with only one subsidiary (direct or indirect),
while complex groups involve multiple subsidiaries arranged in horizontal or vertical structures.
Question 4.
Under IFRS 10, a parent is exempt from preparing consolidated financial statements when
certain conditions are met. Which of the following is a valid exemption condition?
A) The parent's shares are traded on a public stock exchange
B) The parent is a wholly-owned subsidiary and its ultimate or intermediate parent produces
IFRS-compliant consolidated financial statements
C) The parent has fewer than 100 employees
D) The parent operates in a different industry from its subsidiaries
Correct Answer: B
Rationale: Under IFRS 10, a parent may be exempt from presenting consolidated financial
statements if it is a wholly or partially owned subsidiary of another entity and its debt or equity
instruments are not traded in a public market, among other conditions.
Question 5.
The essence of consolidation in group accounting is that the parent is able to control the
financial and operating policies of the subsidiary. This enables the group to be presented as:
A) A tax-compliant entity
B) A single economic unit
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C) A collection of separate legal entities
D) A regulatory reporting entity
Correct Answer: B
Rationale: The essence of consolidation is control: the parent can direct the financial and
operating policies of the subsidiary, enabling the group to be seen and managed as a single
economic unit.
Question 6.
Under IFRS 10, power over an investee arises from existing rights that give the investor the
current ability to direct the relevant activities. Which of the following would MOST likely give
an investor power?
A) Holding 45% of the voting shares in a widely held company with no other large blocks of
shares
B) Holding 10% of the voting shares with no other rights
C) Being a passive investor with no board representation
D) Holding debt that is convertible only in five years
Correct Answer: A
Rationale: Holding 45% of voting shares in a widely held company with no other large blocks
may give de facto control, as the remaining shares are dispersed and the investor may have
practical ability to direct relevant activities.
Question 7.
When a parent sells some of its shares in a subsidiary but retains control, the transaction is
accounted for as:
A) A gain or loss on disposal recognised in profit or loss
B) An equity transaction with no gain or loss in profit or loss
C) A business combination
D) A bargain purchase
Correct Answer: B
Rationale: Changes in a parent's ownership interest in a subsidiary that do not result in loss of
control are accounted for as equity transactions, with adjustments to NCI and parent equity but
no gain or loss recognised in profit or loss.
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Question 8.
If a subsidiary's financial year end differs from that of the parent, how should the
consolidated financial statements be prepared under IFRS 10?
A) The subsidiary must always change its financial year end to match the parent
B) The subsidiary's statements are used as they are with no adjustment
C) The subsidiary prepares financial statements for consolidation purposes as of the same date
as the parent's reporting date
D) The subsidiary's statements are excluded from consolidation
Correct Answer: C
Rationale: To prepare consolidated financial statements, financial information of the parent and
its subsidiaries is drawn up to the same reporting date. If the reporting dates are different, the
subsidiary normally prepares additional financial statements as of the parent's reporting date.
Question 9.
In a parent–subsidiary relationship, what is the PRIMARY purpose of preparing consolidated
financial statements?
A) To comply with tax regulations
B) To present the parent and its subsidiaries as a single economic unit
C) To calculate the parent's profit for dividend distribution
D) To determine individual subsidiary profitability
Correct Answer: B
Rationale: Consolidated financial statements combine the assets, liabilities, equity, income,
expenses, and cash flows of a parent and its subsidiaries into a single set of financial
statements, presenting the group as a single economic entity.
Question 10.
What percentage of voting rights is normally presumed to give an investor control over an
investee under IFRS 10?
A) 20% or more
B) 25% or more
C) 33% or more
D) 50% or more
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