Acc308 Week 1 Question Paper
FACULTY OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE
ACCG308
2013 session 1
Week 7 Self-Study Solutions
Purchase consolidation 1
2
17.1 Define the following terms: holding company, subsidiary, ultimate parent, group entity, sub-subsidiary, reporting entity and indirect interest. Holding company: A company whose sole activity is to invest in other companies, at least one of which is controlled. Also used as a synonym for parent company.
Subsidiary: (a)
(b)
An entity that is controlled by a parent.
For the more elaborate legal definition refer to the Corporations Act, s. 46.
Ultimate parent: The first level company in a group. It controls another parent[s] and has an indirect interest in at least …show more content…
For the purposes of AASB standards, the parent must be a type of entity required to prepare financial statements that comply with the financial reporting provisions in Part 2M.3 of the Act. In the context of this book parent and subsidiaries are typically companies and the group is a corporate group.
Sub-subsidiary: A subsidiary whose parent is itself a subsidiary; the subsidiary of an ultimate parent. A third or lower tier company in the group.
Reporting entity: An entity which is expected to have users who depend on general purpose financial statements about the entity, in their decision-making relating to it.
Indirect interest: An ownership interest in a company, which derives from owning equity in that company’s parent. The group structure must have at least three levels. Parent companies and noncontrolling shareholders can have indirect interests.
17.16 Describe the main features of the entity concept of the group.
The entity concept is a theory concerning the nature of the group. It interprets the group to be a set of entities under the common economic control of parent management. From this initial premise we get:
The group is a single unit. …show more content…
The control date is the date on which the acquirer gets control of the acquired business. AASB 3.9
(which calls it the acquisition date) identifies the date as normally being when the business combination transaction is completed, that is when title passes to the acquirer and consideration is paid. It also acknowledges circumstances when control might arise before or after this event.
The control date is important for two reasons.
It identifies the moment at which a group is created or an existing group is enlarged; it is the moment when the parent/subsidiary relationship arises and subsidiaries cease to be autonomous entities.
It is the means of separating pre-control and post-control periods and events. This distinction is critical since the accounting treatment of pre-control equity and its distribution is substantially different from that for post-control equity and its distribution.
18.7 What is the substitution elimination, and what is its purpose?
The substitution elimination is the one that removes the investment in a subsidiary and the precontrol owners’ equity acquired by that investment from the aggregated consolidation data.
DEPARTMENT OF ACCOUNTING AND FINANCE
ACCG308
2013 session 1
Week 7 Self-Study Solutions
Purchase consolidation 1
2
17.1 Define the following terms: holding company, subsidiary, ultimate parent, group entity, sub-subsidiary, reporting entity and indirect interest. Holding company: A company whose sole activity is to invest in other companies, at least one of which is controlled. Also used as a synonym for parent company.
Subsidiary: (a)
(b)
An entity that is controlled by a parent.
For the more elaborate legal definition refer to the Corporations Act, s. 46.
Ultimate parent: The first level company in a group. It controls another parent[s] and has an indirect interest in at least …show more content…
For the purposes of AASB standards, the parent must be a type of entity required to prepare financial statements that comply with the financial reporting provisions in Part 2M.3 of the Act. In the context of this book parent and subsidiaries are typically companies and the group is a corporate group.
Sub-subsidiary: A subsidiary whose parent is itself a subsidiary; the subsidiary of an ultimate parent. A third or lower tier company in the group.
Reporting entity: An entity which is expected to have users who depend on general purpose financial statements about the entity, in their decision-making relating to it.
Indirect interest: An ownership interest in a company, which derives from owning equity in that company’s parent. The group structure must have at least three levels. Parent companies and noncontrolling shareholders can have indirect interests.
17.16 Describe the main features of the entity concept of the group.
The entity concept is a theory concerning the nature of the group. It interprets the group to be a set of entities under the common economic control of parent management. From this initial premise we get:
The group is a single unit. …show more content…
The control date is the date on which the acquirer gets control of the acquired business. AASB 3.9
(which calls it the acquisition date) identifies the date as normally being when the business combination transaction is completed, that is when title passes to the acquirer and consideration is paid. It also acknowledges circumstances when control might arise before or after this event.
The control date is important for two reasons.
It identifies the moment at which a group is created or an existing group is enlarged; it is the moment when the parent/subsidiary relationship arises and subsidiaries cease to be autonomous entities.
It is the means of separating pre-control and post-control periods and events. This distinction is critical since the accounting treatment of pre-control equity and its distribution is substantially different from that for post-control equity and its distribution.
18.7 What is the substitution elimination, and what is its purpose?
The substitution elimination is the one that removes the investment in a subsidiary and the precontrol owners’ equity acquired by that investment from the aggregated consolidation data.