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EFA4D07 ©CGA-Canada, 2007 Page 1 of 9 CGA-CANADA FINANCIAL ACCOUNTING: CONSOLIDATIONS & ADVANCED ISSUES [FA4] December 2007 Marks Time: 4 Hours Notes: 1. All calculations must be shown in an orderly manner to obtain part marks. 2. Round all calculations to the nearest dollar. 3. Narratives for journal entries are not required unless specifically requested. 4. Assume a December 31 fiscal year end unless specifically stated otherwise. 5. Assume all amounts are material unless directed otherwise. 6. Assume all companies are public companies unless otherwise noted. 7. Assume no companies use differential reporting unless otherwise noted. 30 Question 1 Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if the best answer for item (a) is (1), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations. Note: 2 marks each a. What is the appropriate accounting treatment for the cost assigned to in-process development activity acquired in a business combination? 1) Always expense the development costs at the date of acquisition. 2) Always capitalize the development costs as an asset with future economic benefit. 3) Expense if there is no alternative use for the assets used in the development and technological feasibility has not yet been reached. 4) Expense until future economic benefits become certain and then capitalize as an asset. b. During 2007, Soft Ltd. purchased 70% of the outstanding common shares of Hard Ltd. from Marc, the original founder and sole owner of Hard. To avoid unfavourable changes, Marc stipulated in the sale agreement that he was to retain the right to veto any proposals put forth by the management of Soft and to approve any significant transactions of Hard until he sells his remaining shares in Hard. How should Soft report its investment in Hard, assuming that the fair value of Hard’s shares is readily available? 1) Full consolidation 2) Proportionate consolidation 3) Equity method 4) Cost method c. Which of the following is the best theoretical justification for consolidated financial statements? 1) In legal form, the companies are separate entities; in substance, they are one economic entity. 2) In legal form, the companies are one entity; in substance, they are separate entities. 3) In legal form and substance, the companies are one entity. 4) In legal form and substance, the companies are separate entities. Continued. ..
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EFA4D07 ©CGA-Canada, 2007 Page 2 of 9 d. On October 1, 2007, Big Ltd. issued an 8%, 20-year debenture denominated in Swiss francs. What rate should be used to translate the interest expense for this 20-year debenture for the year ended December 31, 2007? 1)
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