The IFRS for SMEs 1
Topic 3.8
Quiz and Discussion
Section 9 Consolidated and Separate
Financial Statements
Section 19 Business Combinations
and Goodwill
© 2011 IFRS Foundation
2
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The accounting requirements applicable to small and medium‑sized entities
(SMEs) are set out in the International Financial Reporting Standard (IFRS)
for SMEs, which was issued by the IASB in July 2009.
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© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 3
Question 1: A owns 30% of voting interests in Z and owns convertible debt issued
by Z such that, if A chose to convert now, it would have a 60% voting interest in Z.
How should A account for its investment in Z?
a. Consolidate?
b. Equity method?
c. Whatever policy A has adopted for
its other associates?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 4
Question 2: Same as question 1. A also prepares separate financial statements in
compliance with the IFRS for SMEs.
How should A account for its investment in Z in its separate financial statements?
a. Cost less impairment?
b. Fair value with changes in profit or
loss?
c. Choose an accounting policy of either
a. or b. above?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 5
Question 3: A owns 60% of voting interest in B.
B owns 70% of voting interest in C.
How should A account for its investment in C in
its consolidated financial statements?
a. Consolidate?
b. Equity method?
c. Whatever policy A has adopted for
its other associates?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 6
Question 4: A owns 60% and 30% of voting
interest in B and C respectively.
B also owns 30% of voting interest in C.
How should A account for its investment in C in
its consolidated financial statements?
a. Consolidate?
b. Equity method?
c. Whatever policy A has adopted for
its other associates?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 7
Question 5: A owns 100% of C. C sells goods to A
at 25% markup on cost. At year end A holds goods
purchased from C at a cost of 125. The group (A &
C consolidated) should measure this inventory at:
a. 125?
b. 100?
c. 75?
d. 150?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 8
Question 6: P owns 100% of shares of S. In which cases
need P not prepare consolidated financial statements?
a. P is a clothing retailer and S is a
construction contractor?
b. P acquired two subs, R and S, and
intends to resell S within 12 months?
c. Same as b, but S is P’s only sub?
d. A owns 100% of P, and A prepares
IFRS financial statements?
e. S is in bankruptcy and being managed
by a court-appointed trustee.
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 9
Question 7: P buys 60% of S for 100. FV of S’s assets = 120. FV of
S’s liabilities = 50. How much goodwill and NCI is recognised?
a. Goodwill 30 and NCI 28
b. Goodwill 30 and NCI 0
c. Goodwill 58 and NCI 28
d. Goodwill 97 and NCI 67
e. More than one of the above is
permitted by the IFRS for SMEs
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 10
Question 8: P buys 100% of S from Mr X. P pays 100
up front and agrees to pay Mr X another 60 if the
patents for which S has applied are granted. Both P
and Mr X think there’s a ‘better than even’ chance of
the patents being granted. FV of S’s identifiable net
assets is 80. How much goodwill is recognised at
acquisition date?
a. 20 b. 35 c. 60 d. 80
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 11
Question 9: Similar to question 8 except both P
and Mr X think there’s a ‘less than even’ chance of
the patents being granted. FV of S’s identifiable
net assets is 80.
How much goodwill is recognised at acquisition
date?
a. 20 b. 35 c. 60 d. 80
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 12
Question 10: Since its formation Z was
owned 75% by A & 25% by B. When Z’s
equity was CU100,000, A acquired B’s 25%
interest in Z at its fair value of CU60,000.
How would A present the acquisition of
the shares in Z in its consolidated
statement of changes in equity?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion
questions 13
Question 10 continued: A presents a separate
line item in which it shows:
a. CU25,000 as a reduction in NCI?
b. CU60,000 as a reduction in NCI?
c. CU25,000 as a reduction in NCI &
CU35,000 as a reduction in retained
earnings.
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 14
• Question 11: Same as question 10 except
A sold 25% of the shares in Z. A did not
lose control of Z.
• How would A present the disposal of the
shares in B in its consolidated statement
of changes in equity?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion
questions 15
Question 11 continued: A presents a separate
line item in which it shows:
a. CU25,000 as an increase in NCI?
b. CU60,000 as an increase in NCI?
c. CU25,000 as an increase in NCI &
CU35,000 as an increase in retained
earnings.
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 16
Question 12: On 1/1/20X1 A has 100 issued
voting shares. On 2/1/20X1 A acquires 100% of
B from B’s shareholders in exchange for 150 A
voting shares.
Who is the acquirer in this business
combination?
a. A?
b. B?
c. Neither A nor B?
© 2011 IFRS Foundation
Sections 9 & 19 – Discussion questions 17
Question 13: A & B transfer their businesses to Z.
In return A & B each receive 50% of the voting
shares in Z. A & B each appoint 3 members to Z’s
6 member board of directors. A also appoints the
chairman of Z. The chairman has a casting vote.
Who is the acquirer?
a. A?
b. B?
c. Neither A nor B?
© 2011 IFRS Foundation
