ACCA Strategic Business Reporting 1 — Questions and Answers
Question 1: Under IFRS 3, how should contingent consideration in a business combination be initially measured?
- At fair value at the acquisition date (Correct answer)
- At the maximum possible payout amount
- Only recognized when the contingency is resolved
- At the nominal value of the consideration
Correct answer: At fair value at the acquisition date
IFRS 3 requires contingent consideration to be recognized at fair value at the acquisition date, regardless of the probability of payment.
Question 2: Which of the following best describes the 'control' criterion under IFRS 10 for consolidation purposes?
- Ownership of more than 50% of voting rights
- Power over the investee, exposure to variable returns, and ability to use power to affect returns (Correct answer)
- Significant influence over financial and operating policies
- Legal ownership of the majority of net assets
Correct answer: Power over the investee, exposure to variable returns, and ability to use power to affect returns
IFRS 10 defines control as having power over the investee, exposure or rights to variable returns, and the ability to use power to affect those returns.
Question 3: When a parent loses control of a subsidiary without selling all its shares, how should the retained interest be treated?
- Carried at original cost
- Remeasured to fair value on the date control is lost (Correct answer)
- Written down to zero
- Transferred to goodwill
Correct answer: Remeasured to fair value on the date control is lost
Upon loss of control, any retained interest is remeasured to fair value at that date and any gain or loss on the entire disposal is recognized in profit or loss.
Question 4: Under IAS 28, an associate is defined as an entity over which the investor has:
- Control
- Joint control
- Significant influence (Correct answer)
- Minority interest
Correct answer: Significant influence
IAS 28 defines an associate as an entity over which the investor has significant influence, which is presumed at 20–50% ownership.
Question 5: How are translation differences on foreign subsidiaries treated under IAS 21?
- Recognized in profit or loss immediately
- Deferred in a foreign currency translation reserve within other comprehensive income (Correct answer)
- Charged to goodwill
- Netted against the investment in subsidiary balance
Correct answer: Deferred in a foreign currency translation reserve within other comprehensive income
IAS 21 requires exchange differences arising on translation of foreign subsidiaries to be accumulated in a separate component of equity (OCI) until disposal.
Question 6: In a group cash flow statement, how is the acquisition of a subsidiary (net of cash acquired) presented?
- As a financing activity
- As an operating activity
- As an investing activity (Correct answer)
- As a supplemental disclosure only
Correct answer: As an investing activity
Under IAS 7, the acquisition of subsidiaries net of cash and cash equivalents acquired is classified as an investing activity in the consolidated cash flow statement.
ACCA Strategic Business Reporting 1
Under IFRS 3, how should contingent consideration in a business combination be initially measured?