AcAdemic YeAr 2025 | FAc3704 Group FinAnciAl
reportinG – complete ASSiGnment AnSWerS |
VeriFied uniSA AccountinG & FinAnciAl
reportinG Guide | updAted SemeSter 2 2025
portFolio | comprehenSiVe StudY reSource For
South AFricAn StudentS
Question 1
What is the primary purpose of consolidated financial statements?
A) To provide information about the individual performance of each subsidiary
B) To show the financial position of the parent company only
C) To present the financial position and performance of the group as a single entity
D) To comply with tax regulations
Correct Option: C
Rationale:
Consolidated financial statements aggregate the financial results of the parent
company and its subsidiaries, presenting them as if they were a single economic entity.
This provides a clearer picture of the overall financial health and performance of the
group, which is essential for stakeholders.
Question 2
Which of the following is a key requirement for a company to consolidate its
subsidiary?
A) The parent must own 51% of the subsidiary's voting shares
B) There must be a significant influence over the subsidiary
C) The parent must control the subsidiary
D) The subsidiary must be profitable
Correct Option: C
Rationale:
Control is the defining criterion for consolidation under accounting standards such as
IFRS 10. Control exists when the parent has the power to govern the financial and
operating policies of the subsidiary to obtain benefits from its activities, regardless of
the percentage of ownership.
Question 3
In consolidated financial statements, how are intercompany transactions treated?
,A) They are fully recognized in the consolidated statements
B) They are eliminated to avoid double counting
C) They are reported only in the parent’s financial statements
D) They are treated as income for the parent company
Correct Option: B
Rationale:
Intercompany transactions, such as sales between the parent and its subsidiaries,
must be eliminated in the consolidation process to prevent double counting of revenues
and expenses. This ensures that the consolidated financial statements reflect only the
transactions with external parties.
Question 4
What is the term used for the difference between the purchase price and the fair
value of identifiable net assets acquired in a business combination?
A) Goodwill
B) Intangible assets
C) Goodwill
D) Negative goodwill
Correct Option: C
Rationale:
Goodwill arises when a parent company acquires a subsidiary for more than the fair
value of its net identifiable assets. It reflects the value of the company's brand,
customer relationships, and other intangible factors that contribute to its profitability
and competitive advantage.
Question 5
Which standard governs the accounting for business combinations?
A) IAS 7
B) IFRS 3
C) IAS 10
D) IAS 12
Correct Option: B
Rationale:
IFRS 3, "Business Combinations," provides the guidelines for accounting for business
combinations, including the identification of the acquirer, the determination of the
acquisition date, and the recognition and measurement of goodwill and identifiable net
assets acquired.
,Question 6
Which of the following statements is true regarding non-controlling interest (NCI)?
A) NCI is only recognized in the consolidated financial statements of the parent
company.
B) NCI represents the equity in a subsidiary not attributable to the parent.
C) NCI is not included in the consolidated balance sheet.
D) NCI is always equal to 50% of the subsidiary’s net assets.
Correct Option: B
Rationale:
Non-controlling interest represents the portion of equity in a subsidiary that is not
owned by the parent. It is recognized in the consolidated financial statements,
reflecting the interests of other shareholders in the subsidiary.
Question 7
How is non-controlling interest measured at the acquisition date?
A) At the book value of the subsidiary’s net assets
B) At fair value of the non-controlling interest
C) At the purchase price paid by the parent
D) At zero if the parent owns more than 50%
Correct Option: B
Rationale:
At the acquisition date, non-controlling interest is measured at its fair value. This
reflects the market value of the equity interest held by shareholders other than the
parent company, ensuring accurate representation in the consolidated financial
statements.
Question 8
In a business combination, how are contingent liabilities recognized?
A) They are ignored until settled.
B) They are recognized at fair value if they are probable and can be measured
reliably.
C) They are recorded only if paid within the next year.
D) They are treated as goodwill.
Correct Option: B
Rationale:
Contingent liabilities are recognized at fair value in a business combination if they are
, probable and can be measured reliably. This ensures that all financial obligations are
accurately reflected in the consolidated financial statements.
Question 9
Which of the following is NOT a component of equity in consolidated financial
statements?
A) Share capital
B) Retained earnings
C) Deferred tax liabilities
D) Non-controlling interest
Correct Option: C
Rationale:
Deferred tax liabilities are considered liabilities, not equity. Equity components include
share capital, retained earnings, and non-controlling interest, which represent
ownership interests in the company.
Question 10
What is the accounting treatment for a loss of control over a subsidiary?
A) It is not reported.
B) The subsidiary is deconsolidated, and any gain or loss is recognized in profit or
loss.
C) The subsidiary remains consolidated until sold.
D) The loss is recorded as a contingent liability.
Correct Option: B
Rationale:
When a parent loses control over a subsidiary, it must deconsolidate the subsidiary. Any
resulting gain or loss from the deconsolidation is recognized in profit or loss, reflecting
the economic impact of the transaction.
Question 11
Which method is used to account for investments in associates?
A) Cost method
B) Equity method
C) Consolidation method
D) Fair value method
reportinG – complete ASSiGnment AnSWerS |
VeriFied uniSA AccountinG & FinAnciAl
reportinG Guide | updAted SemeSter 2 2025
portFolio | comprehenSiVe StudY reSource For
South AFricAn StudentS
Question 1
What is the primary purpose of consolidated financial statements?
A) To provide information about the individual performance of each subsidiary
B) To show the financial position of the parent company only
C) To present the financial position and performance of the group as a single entity
D) To comply with tax regulations
Correct Option: C
Rationale:
Consolidated financial statements aggregate the financial results of the parent
company and its subsidiaries, presenting them as if they were a single economic entity.
This provides a clearer picture of the overall financial health and performance of the
group, which is essential for stakeholders.
Question 2
Which of the following is a key requirement for a company to consolidate its
subsidiary?
A) The parent must own 51% of the subsidiary's voting shares
B) There must be a significant influence over the subsidiary
C) The parent must control the subsidiary
D) The subsidiary must be profitable
Correct Option: C
Rationale:
Control is the defining criterion for consolidation under accounting standards such as
IFRS 10. Control exists when the parent has the power to govern the financial and
operating policies of the subsidiary to obtain benefits from its activities, regardless of
the percentage of ownership.
Question 3
In consolidated financial statements, how are intercompany transactions treated?
,A) They are fully recognized in the consolidated statements
B) They are eliminated to avoid double counting
C) They are reported only in the parent’s financial statements
D) They are treated as income for the parent company
Correct Option: B
Rationale:
Intercompany transactions, such as sales between the parent and its subsidiaries,
must be eliminated in the consolidation process to prevent double counting of revenues
and expenses. This ensures that the consolidated financial statements reflect only the
transactions with external parties.
Question 4
What is the term used for the difference between the purchase price and the fair
value of identifiable net assets acquired in a business combination?
A) Goodwill
B) Intangible assets
C) Goodwill
D) Negative goodwill
Correct Option: C
Rationale:
Goodwill arises when a parent company acquires a subsidiary for more than the fair
value of its net identifiable assets. It reflects the value of the company's brand,
customer relationships, and other intangible factors that contribute to its profitability
and competitive advantage.
Question 5
Which standard governs the accounting for business combinations?
A) IAS 7
B) IFRS 3
C) IAS 10
D) IAS 12
Correct Option: B
Rationale:
IFRS 3, "Business Combinations," provides the guidelines for accounting for business
combinations, including the identification of the acquirer, the determination of the
acquisition date, and the recognition and measurement of goodwill and identifiable net
assets acquired.
,Question 6
Which of the following statements is true regarding non-controlling interest (NCI)?
A) NCI is only recognized in the consolidated financial statements of the parent
company.
B) NCI represents the equity in a subsidiary not attributable to the parent.
C) NCI is not included in the consolidated balance sheet.
D) NCI is always equal to 50% of the subsidiary’s net assets.
Correct Option: B
Rationale:
Non-controlling interest represents the portion of equity in a subsidiary that is not
owned by the parent. It is recognized in the consolidated financial statements,
reflecting the interests of other shareholders in the subsidiary.
Question 7
How is non-controlling interest measured at the acquisition date?
A) At the book value of the subsidiary’s net assets
B) At fair value of the non-controlling interest
C) At the purchase price paid by the parent
D) At zero if the parent owns more than 50%
Correct Option: B
Rationale:
At the acquisition date, non-controlling interest is measured at its fair value. This
reflects the market value of the equity interest held by shareholders other than the
parent company, ensuring accurate representation in the consolidated financial
statements.
Question 8
In a business combination, how are contingent liabilities recognized?
A) They are ignored until settled.
B) They are recognized at fair value if they are probable and can be measured
reliably.
C) They are recorded only if paid within the next year.
D) They are treated as goodwill.
Correct Option: B
Rationale:
Contingent liabilities are recognized at fair value in a business combination if they are
, probable and can be measured reliably. This ensures that all financial obligations are
accurately reflected in the consolidated financial statements.
Question 9
Which of the following is NOT a component of equity in consolidated financial
statements?
A) Share capital
B) Retained earnings
C) Deferred tax liabilities
D) Non-controlling interest
Correct Option: C
Rationale:
Deferred tax liabilities are considered liabilities, not equity. Equity components include
share capital, retained earnings, and non-controlling interest, which represent
ownership interests in the company.
Question 10
What is the accounting treatment for a loss of control over a subsidiary?
A) It is not reported.
B) The subsidiary is deconsolidated, and any gain or loss is recognized in profit or
loss.
C) The subsidiary remains consolidated until sold.
D) The loss is recorded as a contingent liability.
Correct Option: B
Rationale:
When a parent loses control over a subsidiary, it must deconsolidate the subsidiary. Any
resulting gain or loss from the deconsolidation is recognized in profit or loss, reflecting
the economic impact of the transaction.
Question 11
Which method is used to account for investments in associates?
A) Cost method
B) Equity method
C) Consolidation method
D) Fair value method
