PracticeQuestions_All_Weeks_08_to_10

PracticeQuestions_All_Weeks_08_to_10 - ACCT2542 Corporate...

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1 ACCT2542 – Corporate Financial Reporting and Analysis Session 2, 2009 Solutions to Practice Questions for Tutorials and held in: Tutorial in Week 8: Accounting for Associates Self-Study Tutorial Week 9: Introduction to Corporate Financial Reporting Tutorial in Week 10: Presentation of Financial Statements
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2 WEEK 8 (Sept. 14 – 18): Accounting for Associates Picker, Chapter 22, DQs 22.8 8. Explain the differences in application of the equity method of accounting where the method is applied in the records of the investor compared with the application in the consolidation worksheet of the investor. There are 2 major differences when equity accounting is applied in the consolidation worksheet rather than in the accounts of the investor. First, in relation to past periods: If the adjustments are made in the records of the investor, then in any period, there is only a need to recognise the effects of the current period changes in share of the profit/losses of the associate. If the adjustments are made on consolidation, as the worksheet is only a temporary document and has no affect on the actual accounts, in periods subsequent to the date of acquisition, there needs to be a recognition, via retained earnings, of the investor’s share of prior period profits/losses of associate. Second, in relation to dividend revenue : If the adjustments are made in the accounts of the investor, then on payment of a dividend by the associate, the adjustment is: Cash Dr x Investment in associate Cr x If the adjustments are made on consolidation, the worksheet adjustment is: Dividend revenue Dr x Investment in associate Cr x Deegan 5e Chapter 33, Review Question 6 33.6 Significant influence is defined at AASB 128 as ‘the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies’. Significant influence therefore clearly falls short of ‘control’. Further, there is only a need to ‘have the power to participate’ in the financial and operating policies of the investee. This can be contrasted with the test for control provided in AASB 127, which requires the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. If an entity has control over another entity, then to the extent that the entity with control is a reporting entity, it must be prepare consolidated accounts. If the entity has significant influence then it must account for the investee by way of the use of equity accounting. If the investee has subsidiaries and therefore prepares consolidated reports then it must use equity accounting in its consolidated reports. If it does not produce consolidated reports (it has no subsidiaries) then it will use equity accounting in its own separate accounts.
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3 Deegan 5e Chapter 33 Review Question 13 33.13 Cost method—30 June 2010 entries Dr Cash 12 500 Cr Dividend revenue 12 500 To recognise dividend income Equity method—30 June 2010 adjusting entries
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This note was uploaded on 01/10/2012 for the course FINS 3616 taught by Professor Curry during the Three '10 term at University of New South Wales.

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PracticeQuestions_All_Weeks_08_to_10 - ACCT2542 Corporate...

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