ACCA FR · Chapter 13
Consolidated statement of profit or loss and associates MCQs with Answers
11 multiple-choice questions on Consolidated statement of profit or loss and associates for ACCA FR Financial Reporting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Cougar Co acquired a subsidiary on 1 April. For the year ended 31 December, Cougar Co's revenue was $10,000,000, and the subsidiary's revenue was $6,000,000, earned evenly through the year. After acquisition, Cougar Co sold goods to the subsidiary for $800,000. What is consolidated revenue?
- A) $15,200,000
- B) $14,500,000
- C) $10,700,000
- D) $13,700,000
Show answer & explanation
Answer: D) $13,700,000
The subsidiary's results are consolidated only from the acquisition date: $6,000,000 x 9/12 = $4,500,000. Intra-group sales are eliminated: $10,000,000 + $4,500,000 - $800,000 = $13,700,000.
Question 2
Cougar Co acquired a subsidiary on 1 April. For the year ended 31 December, Cougar Co's cost of sales was $6,000,000 and the subsidiary's was $4,000,000, incurred evenly through the year. Intra-group sales of $800,000 were made after acquisition, and unrealised profit on goods still in the group's inventory at the year end is $50,000. What is consolidated cost of sales?
- A) $8,250,000
- B) $8,150,000
- C) $9,250,000
- D) $9,050,000
Show answer & explanation
Answer: A) $8,250,000
Time-apportion the subsidiary: $4,000,000 x 9/12 = $3,000,000. Eliminate intra-group purchases of $800,000. Add the unrealised profit, which reduces closing inventory and so increases cost of sales: $6,000,000 + $3,000,000 - $800,000 + $50,000 = $8,250,000.
Question 3
Hyena Co acquired 70% of Jackal Co on 1 April. Jackal Co's profit after tax for the year ended 31 December was $2,400,000, earned evenly. A fair value uplift on plant causes extra depreciation of $40,000 a year. Jackal Co sold goods to Hyena Co after acquisition, giving unrealised profit of $20,000 at the year end. Goodwill impairment for the year is $100,000, and NCI is measured at fair value. What is the profit attributable to NCI?
- A) $495,000
- B) $540,000
- C) $492,000
- D) $525,000
Show answer & explanation
Answer: A) $495,000
Post-acquisition profit = $2,400,000 x 9/12 = $1,800,000. Adjustments: extra depreciation $40,000 x 9/12 = $30,000, unrealised profit (subsidiary was seller) $20,000, and goodwill impairment $100,000, which is shared with NCI under the fair value method. Adjusted profit = $1,800,000 - $30,000 - $20,000 - $100,000 = $1,650,000. NCI = 30% x $1,650,000 = $495,000.
Question 4
Under IAS 28, how is an associate defined?
- A) An entity controlled by the investor through holding more than 50% of the voting rights
- B) An entity jointly controlled with other parties under a contractual arrangement
- C) Any equity investment of less than 20% that is not held for trading
- D) An entity over which the investor has significant influence, usually presumed when it holds 20% to 50% of the voting rights
Show answer & explanation
Answer: D) An entity over which the investor has significant influence, usually presumed when it holds 20% to 50% of the voting rights
An associate is an entity over which the investor has significant influence, which is the power to participate in financial and operating policy decisions without control. Holding 20% or more of the voting power creates a rebuttable presumption of significant influence. Associates are accounted for using the equity method.
Question 5
Ibex Co bought 30% of Oryx Co for $3,000,000 and has significant influence. Since acquisition Oryx Co has made profits of $1,200,000 and paid dividends of $400,000. The investment has been impaired by $100,000. What is the carrying amount of the investment in associate in the consolidated SFP?
- A) $3,140,000
- B) $3,260,000
- C) $3,240,000
- D) $2,900,000
Show answer & explanation
Answer: A) $3,140,000
Under the equity method: cost $3,000,000 + share of post-acquisition retained profits 30% x ($1,200,000 - $400,000) = $240,000, less impairment $100,000 = $3,140,000. Dividends received from the associate reduce the carrying amount, so the share of total profit ($360,000) is not used on its own.
Question 6
Ibex Co holds 30% of Oryx Co and accounts for it as an associate. During the year Ibex Co sold goods to Oryx Co for $400,000 at a gross margin of 25%. At the year end Oryx Co still held half of these goods. What AMOUNT of unrealised profit must be eliminated in Ibex Co's consolidated financial statements? (The double entry is not required.)
- A) $50,000
- B) $15,000
- C) $30,000
- D) $12,000
Show answer & explanation
Answer: B) $15,000
Unrealised profit in Oryx Co's inventory = $400,000 x 1/2 x 25% = $50,000. With an associate, only the investor's share is eliminated: 30% x $50,000 = $15,000. For reference, where the parent is the seller the usual FR entry is Dr cost of sales (group profit or loss) $15,000, Cr investment in associate $15,000, because the goods are not in group inventory; the amount is the same whichever entry is used.
Question 7
An associate made profit after tax of $900,000 for the year, all after acquisition. The investor holds 30%. Impairment of the investment in the year was $50,000. What figure should appear as 'share of profit of associate' in the consolidated statement of profit or loss?
- A) $270,000
- B) $850,000
- C) $255,000
- D) $220,000
Show answer & explanation
Answer: D) $220,000
Share of profit = 30% x $900,000 = $270,000. Impairment of the investment in associate for the year is deducted: $270,000 - $50,000 = $220,000. The associate's revenue and expenses are not added line by line, because only one figure is shown.
Question 8
In its individual accounts, the parent Okapi Co recognised investment income of $410,000: dividends of $300,000 from a subsidiary, $90,000 from an associate and $20,000 from other equity investments. What investment income should appear in the consolidated statement of profit or loss?
- A) $110,000
- B) $410,000
- C) $20,000
- D) $320,000
Show answer & explanation
Answer: C) $20,000
Dividends from a subsidiary are intra-group and are cancelled on consolidation. Dividends from an associate are replaced by the group's share of the associate's profit, shown separately, so including them would double count. Only the $20,000 from other investments stays as investment income.
Question 9
Bison Co acquired a subsidiary on 1 October. The subsidiary's profit for the year ended 31 December was $1,200,000, earned evenly. How much of that profit is included in consolidated profit for the year?
- A) $1,200,000
- B) $900,000
- C) $300,000
- D) $600,000
Show answer & explanation
Answer: C) $300,000
A subsidiary's results are included only from the date control is obtained. Profit from 1 October to 31 December = $1,200,000 x 3/12 = $300,000. The profit earned before acquisition is pre-acquisition and forms part of the net assets acquired.
Question 10
Gazelle Co's subsidiary operates in banking, while the rest of the group manufactures furniture. Which statement about consolidating this subsidiary is correct?
- A) It must be excluded from consolidation and carried at cost
- B) It must be accounted for using the equity method
- C) It may be excluded if the directors believe consolidation would be misleading
- D) It must be consolidated, because IFRS 10 does not allow subsidiaries to be excluded on the grounds of dissimilar activities
Show answer & explanation
Answer: D) It must be consolidated, because IFRS 10 does not allow subsidiaries to be excluded on the grounds of dissimilar activities
Under IFRS 10, all subsidiaries controlled by the parent must be consolidated. Dissimilar activities are not a reason to exclude one. Relevant information is given instead through segment and other disclosures.
Question 11
For the year, parent Bongo Co's profit after tax was $5,000,000, including a $400,000 dividend from its 80% subsidiary. The subsidiary's profit after tax was $2,000,000, all post-acquisition. Adjustments are: unrealised profit on goods sold by the parent to the subsidiary $60,000; extra depreciation on the subsidiary's fair value uplift $50,000; and goodwill impairment $100,000, with NCI measured at fair value. What profit is attributable to the owners of the parent?
- A) $6,420,000
- B) $5,990,000
- C) $6,020,000
- D) $6,032,000
Show answer & explanation
Answer: C) $6,020,000
Consolidated profit = $5,000,000 - intra-group dividend $400,000 + $2,000,000 - unrealised profit $60,000 - extra depreciation $50,000 - impairment $100,000 = $6,390,000. NCI = 20% x ($2,000,000 - $50,000 - $100,000) = $370,000. The unrealised profit is not charged to NCI because the parent was the seller. Owners of the parent = $6,390,000 - $370,000 = $6,020,000.