Going through the Consolidation of Accounts – Corporate and Management Accounting CS Executive MCQ Questions with Answers you can quickly revise the concepts.
Consolidation of Accounts– Corporate and Management Accounting MCQs
Question 1.
Holding company, in relation to one or more other companies, means a company of which such companies are –
(A) Associate Companies
(B) Subsidiary Companies
(C) Both (A) and (B)
(D) Either (A) or (B)
Answer:
(B) Subsidiary Companies
Question 2.
Which of the following would qualify a company to be regarded as a parent of another
(A) A parent should control the majority of the votes at subsidiary’s shareholders’ meetings.
(B) A parent should own majority shares in the subsidiary.
(C) A parent and its subsidiary both must be in the same line of business.
(D) A parent and the subsidiary both should have the same persons as their directors.
Answer:
(A) A parent should control the majority of the votes at subsidiary’s shareholders’ meetings.
Question 3.
Subsidiary company in relation to any other company (that is to say the holding company), means a company in which the holding company -…………….
(A) Controls the composition of the Board of Directors
(B) Exercises or controls more than 50% of the total voting power either at its own or together with one or more of its subsidiary companies
(C) Both (A) or (B)
(D) Neither (A) nor (B)
Answer:
(C) Both (A) or (B)
Question 4.
Pre-acquisition profit in subsidiary company is considered as:
(A) Revenue profit
(B) Capital profit
(C) Goodwill
(D) Cost of control
Answer:
(B) Capital profit
Question 5.
Which section of the Companies Act, 2013 requires the preparation of consolidated financial statements
(A) Section 127
(B) Section 128
(C) Section 130
(D) Section 129
Answer:
(D) Section 129
Question 6.
Associate company in relation to another company, means –
(A) A company which cannot be classified as subsidiary company or joint venture company
(B) A company which is a subsidiary company of the company having significant influence
(C) A company which is originally formed as associate company as such.
(D) A company in which that other company has a significant influence
Answer:
(D) A company in which that other company has a significant influence
Question 7.
Holding company holds more than ………….. voting power in subsidiary company.
(A) 25%
(B) 40%
(C) 50%
(D) 75%
Answer:
(C) 50%
Question 8.
In associate companies, one company holds ………… of share capital.
(A) more than 20% but less than 50%
(B) more than 10% but less than 25%
(C) more than 25% but less than 50%
(D) more than 50% but less than 75%
Answer:
(A) more than 20% but less than 50%
Question 9.
Term ‘subsidiary company’ is defined in:
(A) Section 2(4)
(B) Section 2(5)
(C) Section 2(6)
(D) Section 2(7)
Answer:
(C) Section 2(6)
Question 10.
The company shall attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in as per Companies (Accounts) Rules, 2014.
(A) Form No. AOC-1
(B) Form No. AOC-2
(C) Form No. AOC-4
(D) Form No. AOC-3
Answer:
(A) Form No. AOC-1
Question 11.
Minority interest represents –
(A) Shares owned by minor persons in a consolidated financial statement of holding company.
(B) Shares owned by persons who can be classified as small shareholders in a consolidated financial statement of holding company.
(C) Shares owned by third parties in a consolidated financial statement of holding company.
(D) Shares owned by creditors in a total debt in preparation of consolidated financial statement of holding company.
Answer:
(C) Shares owned by third parties in a consolidated financial statement of holding company.
Question 12.
Term ‘associate company’ is defined in -………….
(A) Section 2(6)
(B) Section 2(7)
(C) Section 2(5)
(D) Section 2(4)
Answer:
(A) Section 2(6)
Question 13.
Holding company’s share in revenue profits of subsidiary company is adjusted in:
(A) Cost of control
(B) Shown on assets side of balance sheet
(C) Profit and loss account of holding company
(D) Capital profits of holding company
Answer:
(C) Profit and loss account of holding company
Question 14.
Which of the following statements are correct with regard to preparation of consolidated financial statements
A. To be a subsidiary a parent should hold 100% of its equity shares.
B. Consolidation is merely addition together of two Statements of financial position.
C. In consolidation a subsidiary and an associate are treated identically.
D. Consolidated balance sheet excludes assets not owned by the group.
Select the correct answer from the options given below.
(A) A & D
(B) B &C
(C) A & B
(D) None
Answer:
(D) None
Question 15.
While preparing a consolidated financial statements, in share capital held by outsider if we add pre-acquisition post-acquisition profits proportionate to share capital held by those outsider resultant figure will be -…….
(A) Goodwill
(B) Cost of control
(C) Minority interest
(D) Capital reserve
Answer:
(C) Minority interest
Question 16.
If cost of acquisition of shares in the subsidiary company is less than intrinsic value of the shares of subsidiary company on the date of acquisition then resultant figure will be:
(A) Minority interest
(B) Capital Reserve
(C) Goodwill
(D) Significant cost
Answer:
(B) Capital Reserve
Question 17.
Issue of bonus shares by the subsidiary company:
(A) Affects the cost of control.
(B) Increases the control percentage in subsidiary company.
(C) Reduces the cost of investment of holding company.
(D) Does not affect the cost of control.
Answer:
(D) Does not affect the cost of control.
Question 18.
Which of the following will affect cost of control
(A) Issue of bonus shares by the subsidiary company out of pre-acquisition profit
(B) Issue of bonus shares by the subsidiary company out of post-acquisition profit
(C) Buyback of shares by subsidiary company from all shareholders in equal proportion
(D) None of the above
Answer:
(D) None of the above
Question 19.
Which of the following statement(s) apply when consolidating statements of financial position
I. All inter-company balances should be cancelled.
II. The group share of the whole of subsidiary’s profit is included within group profit.
III. Inter-company profit should be eliminated unless it is realized by sale to an outsider.
IV. Subsidiary’s asset values need to be updated at the end of each accounting period.
Select the correct answer from the options given below.
(A) I & III
(B) I & IV
(C) II & III
(D) I & II
Answer:
(A) I & III
Question 20.
Issue of bonus shares by subsidiary company out of pre-acquisition profit:
(A) Will reduce the paid-up value shares held by holding company.
(B) Will reduce holding company’s share in pre-acquisition profits of subsidiary company.
(C) Must be debited to General Reserve A/c and credited to Profit & Loss A/c of subsidiary.
(D) Will affect the market capitalization of subsidiary company.
Answer:
(B) Will reduce holding company’s share in pre-acquisition profits of subsidiary company.
Question 21.
Holding company’s share in pre-acquisition losses of subsidiary –
(A) Should be treated as capital loss
(B) Added to the ‘cost of control’
(C) Will increase the goodwill while calculating cost of control
(D) All of the above
Answer:
(D) All of the above
Question 22.
Holding company’s share in pre-acquisition profits of subsidiary –
(A) Should be credited to the profit & loss account of holding company
(B) Deducted from the cost of the ‘cost of control’
(C) Needs separate disclosure in consolidated financial statements.
(D) None of the above
Answer:
(B) Deducted from the cost of the ‘cost of control’
Question 23.
With regard to preparing consolidated statements of financial position which of the following statements is/are correct?
1. The consolidated statement of financial position reports only parent’s goodwill.
2. Any unrealized profit made by a subsidiary should be eliminated from its profit.
3. An amount owed to each other within the group needs to be cancelled.
4. Only the group portion of any unrealized profit need be eliminated.
Select the correct answer from the options given below.
(A) 3
(B) 1
(C) 2 & 3
(D) 3 & 4
Answer:
(C) 2 & 3
Question 24.
Dividend received out of pre-acquisition profits of subsidiary
(A) It should be treated as revenue income and credited to the Profit and Loss A/c.
(B) Added while calculating ‘cost of control’.
(C) Should be treated as capital receipt and credited to Investment A/c
(D) Will increase the Goodwill while calculating cost of control.
Answer:
(C) Should be treated as capital receipt and credited to Investment A/c
Question 25.
If cost of acquisition of shares in the subsidiary company is more than intrinsic value of the shares of subsidiary company on the date of acquisition then resultant figure will be:
(A) Minority interest
(B) Capital Reserve
(C) Goodwill
(D) Significant cost
Answer:
(C) Goodwill
Question 26.
Deduction of outsiders liabilities from total assets then dividing it by number of shares, the resultant figure will be –
(A) Intrinsic value per share
(B) Net asset value per share
(C) Asset backing value per share
(D) All of the above
Answer:
(D) All of the above
Question 27.
Which of the following treatment of ‘Share Capital’ of subsidiary company is correct
(A) Share capital held by the holding company will be added to the cost of control statement.
(B) Share capital held by minority will be deducted in minority statement.
(C) Share capital of subsidiary held by holding company will be deducted from the cost of Investment to find out goodwill/capital reserve.
(D) Share capital of subsidiary will be set-off against the negative net worth of other subsidiary.
Answer:
(C) Share capital of subsidiary held by holding company will be deducted from the cost of Investment to find out goodwill/capital reserve.
Question 28.
If closing balance of general reserve of subsidiary is more than opening balance of general reserve then it can be concluded that –
(A) Capital profits are debited to the General Reserve A/c
(B) Pre-acquisition dividend is declared by the subsidiary company
(C) Some profit must have been transferred to general reserve by debiting profit & loss account by the subsidiary company
(D) Bonus share capital is issued by the subsidiary company
Answer:
(C) Some profit must have been transferred to general reserve by debiting profit & loss account by the subsidiary company
Question 29.
If closing balance of general reserve of subsidiary is less than opening balance of general reserve then it can be concluded that –
(A) Pre-acquisition dividend is declared by the subsidiary company
(B) Bonus share capital is issued by the subsidiary company
(C) Some profit must have been transferred to general reserve by debiting profit & loss account by the subsidiary company
(D) Capital profits are credited to the General Reserve A/c
Answer:
(B) Bonus share capital is issued by the subsidiary company
Question 30.
Unrealized profit on goods sold and included in stock is deducted from:
(A) Capital Profit
(B) Revenue Profit
(C) Fixed Assets
(D) Minority interest
Answer:
(B) Revenue Profit
Question 31.
Which of the following treatment is correct for mutual debts with regard to purchase and sale of goods between holding and subsidiary company
(A) Amount of mutual debt will be added to the Debtors and Creditors on asset side and liability side respectively while preparing the consolidated balance sheet.
(B) Amount of mutual debt will be ignored as it is not asset or liability at ah.
(C) Amount of mutual debt will be deducted from the Debtors and Creditors on asset side and liability side respectively while preparing the consolidated balance sheet.
(D) Amount of mutual debt will require adjustment on debtors figure on asset side only if amount receivable by subsidiary company is more than amount payable to holding company.
Answer:
(C) Amount of mutual debt will be deducted from the Debtors and Creditors on asset side and liability side respectively while preparing the consolidated balance sheet.
Question 32.
Which of the following statements are incorrect with regard to preparation of a consolidated statement of financial position
(a) Gain on fair valuation of a subsidiary’s asset is a pre-acquisition profit.
(b) Non-controlling interest does not deserve any portion of fair valuation gain.
(c) If an asset is not reported in the subsidiary’s ledger it need not be fan valued.
(d) Gain on fair valuation of subsidiary’s asset inflates the cost of goodwill.
Select the correct answer from the options given below.
(A) (b),(c)&(d)
(B) (c)&(d)
(C) (ac)&(d)
(D) (a),(b)&(c)
Answer:
(A) (b),(c)&(d)
Question 33.
On a consolidated balance sheet, if the shares of a company have been bought for more than the balance sheet value then the difference would appear as:
(A) Profit on purchase
(B) Goodwill
(C) Capital reserve
(D) Loss on purchase
Answer:
(B) Goodwill
Question 34.
If less than 100% of a subsidiary’s share capital has been acquired then what is the rule for inclusion of the subsidiary’s assets on the consolidated balance sheet
(A) Only a proportional amount should appear.
(B) All the assets should appear.
(C) None can appear until all the shares have been acquired.
(D) Half the value should appear.
Answer:
(B) All the assets should appear.
Question 35.
What is the term used to describe dividends paid by one company in the group to another in the same group
(A) Inter-group dividends
(B) Intra-group dividends
(C) Group dividends
(D) Interim dividends
Answer:
(B) Intra-group dividends
Question 36.
Which of the following is true
(A) Minority shareholders share of pre-acquisition losses should be added to the amount of Minority Interest.
(B) Holding company’s share of pre-acquisition losses must be debited to Profit & Loss A/c
(C) Dividend received out of pre-acquisition profits of subsidiary should be credited to Investment A/c.
(D) Dividend received out of post-acquisition profits of subsidiary should be debited to Investment A/c.
Answer:
(C) Dividend received out of pre-acquisition profits of subsidiary should be credited to Investment A/c.
Question 37.
How is a negative goodwill reported on the consolidated statement of financial position
(A) As a negative asset ie. shown on the asset side but as a deduction.
(B) A tenth of it is included in consolidated reserves and the remainder reported as a reserve.
(C) Included fully in the consolidated retained earnings.
(D) As a reserve, which may preferably be titled a capital reserve
Answer:
(D) As a reserve, which may preferably be titled a capital reserve
Question 38.
If stock is sold for a profit from one group member to another, how should this be dealt with in the final accounts
(A) Stock should appear at the original cost.
(B) The profits should be included but stock would appear at the value sold for.
(C) Profit on sale should be eliminated and stock appears at original cost.
(D) Profits on the sale should be eliminated.
Answer:
(C) Profit on sale should be eliminated and stock appears at original cost.
Question 39.
The claim by outsiders to assets featured on a consolidated balance sheet is known as:
(A) Subsidiary
(B) Negative goodwill
(C) Minority interest
(D) Wholly owned subsidiary
Answer:
(C) Minority interest
Question 40.
On consolidation, if the total of the fair value of the assets acquired is less than the whole purchase consideration then the differences should be treated as:
(A) Negative goodwill
(B) Goodwill
(C) Profit on acquisition
(D) Loss on acquisition
Answer:
(B) Goodwill
Question 41.
When dealing with consolidated balance sheets, the expression cost of control could be used instead of:
(A) Acquisition expenditure
(B) Goodwill
(C) Intangible investments
(D) Negative goodwill
Answer:
(B) Goodwill
Question 42.
Which of the following is not normally considered the right of an ordinary shareholder
(A) An interest in the profits earned by the company.
(B) An interest in the day-to-day running of the company.
(C) An interest in the net assets of the company.
(D) Voting rights at meetings.
Answer:
(B) An interest in the day-to-day running of the company.
Question 43.
Y Company has a receivable from its parent, X Company. Should this receivable be separately reported on Y’s balance sheet and in X’s consolidated balance sheet=
Answer:
(A)
Question 44.
Which of the following is the best theoretical justification for consolidated financial statements
(A) In form the companies are one entity; in substance they are separate.
(B) In form the companies are separate; in substance they are one entity.
(C) In form and substance the companies are on entity.
(D) In form and substance the companies are separate.
Answer:
(B) In form the companies are separate; in substance they are one entity.
Question 45.
Which of the following statement is false
(A) Minority interest shown in the consolidated balance sheet is the equity held by the outsiders in the subsidiary company.
(B) Cost of control is the excess price paid for investment over and above proportionate share of net assets acquired by the holding company.
(C) Profit on revaluation of fixed assets is a capital profit and depreciation on such amount is a revenue loss.
(D) For calculating cost of control there is no need to distinguish between capital and revenue profits of the subsidiary.
Answer:
(D) For calculating cost of control there is no need to distinguish between capital and revenue profits of the subsidiary.
Question 46.
Preparation of consolidated Balance Sheet of holding company and its subsidiary company is as per
(A) AS-11
(B) AS-20
(C) AS-21
(D) AS-23
Answer:
(C) AS-21
Question 47.
Pre-acquisition dividend received by Holding company is credited to:
(A) Profit & Loss A/c
(B) Capital Profit
(C) Investment A/c
(D) None of the above
Answer:
(C) Investment A/c
Question 48.
Post acquisition dividend received by Holding Company is:
(A) Debited to Profit & Loss A/c & Credited to Bank A/c
(B) Debited to Bank A/c and Credited to Investment A/c
(C) Debited to Investment A/c and Credited to Bank A/c
(D) Debited to Bank A/c and Credited to Profit & Loss A/c
Answer:
(D) Debited to Bank A/c and Credited to Profit & Loss A/c
Question 49.
Which exchange rate will be considered for conversion of share capital of subsidiary company
(A) Closing rate
(B) Opening Rate
(C) Actual rate on date of share acquisition
(D) Average Rate
Answer:
(C) Actual rate on date of share acquisition
Question 50.
The group’s share of the pre-acquisition reserves of a subsidiary form part of the:
(A) Goodwill calculation
(B) Group’s capital reserves
(C) Group’s revenue reserves
(D) Group’s share capital
Answer:
(A) Goodwill calculation
Question 51.
As per AS-21, a Consolidated Financial Statement will not be prepared by the parent company when-
(A) Control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future.
(B) Subsidiary company operates under severe long-term restrictions, which significantly impair its ability to transfer funds to the parent.
(C) Both (A) and (B)
(D) None of the above
Answer:
(C) Both (A) and (B)
Question 52.
In which of the following case the C Ltd. will be subsidiary of A Ltd.
(A) If A Ltd. holds 75% shares in B Ltd. and B Ltd. holds 25% shares in C Ltd.
(B) If A Ltd. holds 75% shares in B Ltd. and 25% shares in C Ltd.
(C) If A Ltd. holds 75% shares in B Ltd. and A Ltd. and B Ltd. holds 25% & 30% shares in C Ltd.
(D) If A Ltd. holds 75% shares in B Ltd. and C Ltd. holds 25% shares in B Ltd.
Answer:
(C) If A Ltd. holds 75% shares in B Ltd. and A Ltd. and B Ltd. holds 25% & 30% shares in C Ltd.
A Ltd. holds 75% shares in B Ltd., then B Ltd. is subsidiary of A Ltd., in other words A Ltd. is the parent company. If A Ltd. is holding 25% shares in C Ltd., then there is no holding-subsidiary relationship between them. But if along with A Ltd., B Ltd. also holds 30% shares in C Ltd., then A Ltd. holding in C Ltd. is 55%, though indirectly, and A Ltd. is parent company of both B Ltd. and C Ltd.
Question 53.
If A Ltd. is proved to be a subsidiary company of B Ltd., C Ltd. & D Ltd., then which company is liable to prepare Consolidated Financial Statement?
(A) B Ltd.
(B) C Ltd.
(C) D Ltd.
(D) All companies excluding A Ltd.
Answer:
(D) All companies excluding A Ltd.
Question 54.
Goodwill = ?
(A) Cost of Investment less Parent’s share in the equity of the subsidiary on date of investment less Minority interest
(B) Cost of Investment less Parent’s share in the equity of the subsidiary on date of investment.
(C) Parent’s share in the equity of the subsidiary on date of investment less Cost of investment
(D) Cost of Investment add Parent’s share in the equity of the subsidiary on date of investment add Minority interest
Answer:
(B) Cost of Investment less Parent’s share in the equity of the subsidiary on date of investment.
Question 55.
H Ltd. acquires 70% of the equity shares of S Ltd. on 1.1.2019. On that date, paid-up capital of S Ltd. was 10,000 equity shares of ₹ 10 each; accumulated reserve balance was ₹ 1,00,000. H Ltd. paid ₹ 1,60,000 to acquire 70% interest in the S Ltd. Assets of S Ltd. were revalued on 1.1.2019 and a revaluation loss of ₹ 20,000 was ascertained. Which of the following is correct in relation to cost of control of group consolidated financial statement
(A) Capital Reserve — ₹ 34,000
(B) Goodwill — ₹ 34,000
(C) Capital Reserve — ₹ 1,26,000
(D) Goodwill — ₹ 1,26,000
Answer:
(B) Goodwill — ₹ 34,000
H Ltd. paid a positive differential of ₹ 34,000 Le. ₹ (1,60,000 – 1,26,000). This differential is also called goodwill and is shown in the balance sheet under the head intangibles.
Question 56.
H Ltd. holds 7,500 shares of S Ltd. Total shares of S Ltd. are 10,000 of ₹ 10 each. General Reserve and Profit & Loss balance of S Ltd. are ₹ 35,000 & ₹ 27,500 respectively out of which 40% relates to post-acquisition period. Minority Interest = ?
(A) ₹ 40,625
(B) ₹ 34,375
(C) ₹ 50,525
(D) ₹ 40,925
Answer:
(A) ₹ 40,625
Question 57.
Balance Sheet of S Ltd. is as follows:
H Ltd. holds 80% shares of S Ltc
Minority Interest?
(A) ₹ 32,500
(B) ₹ 32,100
(C) ₹ 40,125
(D) ₹ 38,450
Answer:
(B) ₹ 32,100
Question 58.
Balances of S Ltd. on 31.3.2019 are:
General Reserve ₹ 70,000
Profit & Loss Account ₹ 1,40,000
Balances of general reserve and profit and loss account on 1.4.2018 of S Ltd. were ₹ 10,000 and ₹ 50,000 respectively. Profit earned by S Ltd. during the year 2018-2019 = ?
(A) ₹ 90,000
(B) ₹ 1,20,000
(C) ₹ 1,50,000
(D) ₹ 80,000
Answer:
(C) ₹ 1,50,000
Question 59.
Following are the balances of S Ltd. on 31.3.2019:
General Reserve — ₹ 1,75,000
Profit & Loss Account — ₹ 3,50,000
H Ltd. acquired 60% shares on 30th June, 2018 . Balances of general reserve and profit and loss account on 1.4.2018 of S Ltd. were ₹ 25,000 and ₹ 1,25,000 respectively. Share of H Ltd. in post-acquisition profit will be –
(A) ₹ 1,68,750
(B) ₹ 1,46,250
(C) ₹ 1,12,500
(D) ₹ 2,81,250
Answer:
(A) ₹ 1,68,750
Alternatively,
Prepare General Reserve A/c & Profit & Loss A/c and find out the profit made during the year.
Share of H Ltd. in post-acquisition profit will be = 3,75,000 × 9/12 × 60% = 1,68,750
Question 60.
Following are the balances of S Ltd. on 31.3.2019:
Equity Share Capital — ₹ 10,00,000
General Reserve — ₹ 3,50,000
Profit & Loss Account — ₹ 7,00,000
H Ltd. acquired 80% shares on 31st July,
2018. Balances of general reserve and profit and loss account on 1.4.2018 of S Ltd. were ₹ 50,000 and ₹ 2,50,000 respectively. Share of Minority in post-acquisition profit will be –
(A) ₹ 1,10,000
(B) ₹ 1,00,000
(C) ₹ 5,00,000
(D) ₹ 2,70,000
Answer:
(B) ₹ 1,00,000
Share of Minority in post-acquisition profit will be = 7,50,000 × 8/12 × 20% = 1,00,000
Question 61.
Following are the balances of S Ltd. on 31.3.2019:
Equity Share Capital — ₹ 20,00,000
General Reserve — ₹ 7,00,000
Profit & Loss Account — ₹ 14,00,000
H Ltd. acquired 70% shares on 1.1.2019 Balances of general reserve and profit and loss account on 1.4.2018 of S Ltd. were ₹ 1,00,000 and ₹ 5,00,000 respectively. Minority Interest = ?
(A) ₹ 12,90,000
(B) ₹ 5,20,000
(C) ₹ 7,00,000
(D) ₹ 12,30,000
Answer:
(D) ₹ 12,30,000
20,00,000 + 7,00,000 + 14,00,000 × 30% = 12,30,000.
Question 62.
H Ltd. holds 75% Shares in S Ltd. In January, 2019 S Ltd. sold to its parent company H Ltd. goods costing ₹ 15,000 for ₹ 20,000. On 31st March, 2019 half of these goods were lying as unsold in godowns of H Ltd. Which of the following is correct treatment for unrealized profit on stock while preparing consolidated financial statement of H Ltd. & S Ltd.?
(A) Stock reserve of ₹ 5,000 will be reduced from ‘Stock’ on asset side in balance sheet and ₹ 5,000 will be added to the profit & loss account of H Ltd.
(B) ₹ 15,000will be reduced from current asset & current liabilities
(C) Stock reserve of ₹ 5,000 will be reduced from ‘Stock’ on asset side in balance sheet and capital reserve of H Ltd.
(D) Stock reserve of ₹ 2,500 will be reduced from ‘Stock’ on asset side in balance sheet and ₹ 2,500 will be debited to profit & loss account of H Ltd.
Answer:
(D) Stock reserve of ₹ 2,500 will be reduced from ‘Stock’ on asset side in balance sheet and ₹ 2,500 will be debited to profit & loss account of H Ltd.
Question 63.
General reserve of S Ltd. on 31.3.2020 was ₹ 90,000. Break-up of its profit and loss account is given below.
On 1.7.2019, H Ltd. acquired interest in S Ltd. by acquiring 72,000 fully paid equity shares of ₹ 10 each for ₹ 8,00,000. Total paid-up share capital of S Ltd. is ₹8,00,000. H Ltd. credited the entire amount of interim dividend received to its profit and loss account. How much goodwill or capital reserve will be shown in consolidated balance sheet?
(A) Goodwill 2 46,000
(B) Capital reserve ₹ 10,000
(C) Goodwill ₹ 80,000
(D) Capital reserve ₹ 46,000
Answer:
(D) Capital reserve ₹ 46,000
Question 64.
Following are the balances of H Ltd. & S Ltd. on 31.3.2019:
Bills accepted by S Ltd. were all shown by H Ltd. and H Ltd. had got bills amounting to ₹ 30,000 discounted with bank. On 31.3.2019, S Ltd. owed ₹ 30,000 to H Ltd. for goods purchased from it. After setting-off mutual debts
(a) Net Account Receivables and
(b) Net Account Payables will appear in consolidated financial statement at –
Answer:
(C)
Question 65.
S Ltd. is subsidiary of H Ltd. S Ltd. remitted a cheque for ₹ 5,000 to H Ltd. on 30th March, 2018, which was received by H Ltd. on 1st April, 2019. Accounting year of both companies closed on 31 st March
2019. Which of the following treatment is correct in consolidated financial statement for cheque in transit
(A) Bank balance of S Ltd. will be added by ₹ 5,000 and cheque in transit of ₹ 5,000 will be separately shown in balance sheet on asset side.
(B) Really no treatment is required for cheque in transit as it does not affect the aggregate bank balance of the group if proper entries are passed by the parent company and subsidiary company as and when cheque is received or paid.
(C) Bank balance of H Ltd. will be increased by 5,000 and cheque in transit of ₹ 5,000 will be separately shown in balance sheet on asset side
(D) All of the above are correct
Answer:
(B) Really no treatment is required for cheque in transit as it does not affect the aggregate bank balance of the group if proper entries are passed by the parent company and subsidiary company as and when cheque is received or paid.
Question 66.
A parent owns two third of the subsidiary’s equity. As at a year end the subsidiary’s inventory includes goods sent to it by the parent invoiced at ₹ 3,60,000. Parent has purchased these goods for ₹ 3,00,000. Which of the following are the correct entries for eliminating unrealized profit₹
(A) Debit the parent’s retained earnings and credit the subsidiary’s inventory with ₹ 60,000.
(B) Debit the subsidiary’s retained earnings and credit the subsidiary’s inventory with ₹ 45,000.
(C) Debit the subsidiary’s retained earnings and credit the subsidiary’s inventory with ₹ 60,000.
(D) Debit the parents retained earnings and credit subsidiary’s inventory with ₹ 45,000.
Answer:
(A) Debit the parent’s retained earnings and credit the subsidiary’s inventory with ₹ 60,000.
Question 67.
What is the amount of the unrealized profit to be eliminated if the parent’s year- end inventory includes at ₹ 5,40,000 goods invoiced to it by its 60% owned subsidiary at cost plus 25%.
(A) ₹ 35,000
(B) ₹ 1,08,000
(C) ₹ 64,800
(D) ₹ 81,000
Answer:
(B) ₹ 1,08,000
Question 68.
Subsidiary’s inventory at the year end included ₹ 1,80,000 purchased from its parent. Further goods invoiced by the parent at ₹ 45,000 were in transit. The parent invoices the subsidiary at cost plus 20%. The amount of unrealized profit that needs to be eliminated from the parent’s retained earnings would be:
(A) ₹ 37,500
(B) ₹ 36,000
(C) ₹ 38,333
(D) ₹ 30,000
Answer:
(A) ₹ 37,500
(1,80,000 + 45,000) × 1/6 = 37,500
Question 69.
Any amount owed by one member of a group to another need to be cancelled when preparing the consolidated statement of financial position. As at the year end the parent’s receivable includes ₹ 90,000 due from the subsidiary; whereas the subsidiary reports that it owes only ₹ 60,000 to the parent. Difference has arisen because of cash in transit. Which is the correct way of dealing with the situation when preparing the consolidated statement of financial position
(A) Cancel ₹ 90,000 from both Receivable and Payable.
(B) Cancel ₹ 90,000 from parent’s Receivable, ₹ 60,000 from subsidiary’s Payable and include 30,000 with Cash.
(C) Cancel ₹ 90,000 from Receivable and ₹ 60,000 from Payable.
(D) Cancel ₹ 60,000 from both Receivable and Payable
Answer:
(B) Cancel ₹ 90,000 from parent’s Receivable, ₹ 60,000 from subsidiary’s Payable and include 30,000 with Cash.
Question 70.
As at the year end the parent’s statement of financial position reports rent receivable as an asset at ₹ 60,000 and this includes ₹ 15,000 due from the subsidiary. Subsidiary reports rent payable as ₹ 15,000. Which of the following will be included in the consolidated statement of financial position₹
(A) Rent receivable as an asset at ₹ 45,000 and rent payable as a current liability at ₹ 15,000.
(B) Rent receivable as an asset at ₹ 60,000 and report nothing as current liability.
(C) Rent receivable as an asset at ₹ 45,000 and report nothing within Current liabilities as rent payable.
(D) Rent receivable as an asset at ₹ 60,000 and rent payable as a current liability at ₹ 15,000.
Answer:
(C) Rent receivable as an asset at ₹ 45,000 and report nothing within Current liabilities as rent payable.
Question 71.
The parent paid ₹ 48,000 to acquire 75% of 3,000 ordinary shares of ₹ 10.00 and reserves of the subsidiary were reported as ₹ 35,000 and fair valuation of its assets identified a gain of ₹ 5,000. What is the goodwill/capital reserve of the subsidiary on this date?
(A) Goodwill ₹ 8,000
(B) Capital Reserve ₹ 17,000
(C) Goodwill ₹ 13,000
(D) Capital Reserve ₹ 22,000
Answer:
(D) Capital Reserve ₹ 22,000
Question 72.
On 1.7.2012 H Ltd. acquired 7,500 shares of ₹ 100 each in S Ltd. at a cost of ₹ 160 per share. The total number of shares in S Ltd. is 10,000. In August, 2012 S Ltd. paid a dividend of ₹ 10 per share for the year ending 31.3.2012. In September, 2012 H sold 500 shares in S Ltd. @ ₹ 155. At what figure will be the Investment Account now stands in the books of H Ltd.?
(A) ₹ 10,47,500
(B) ₹ 11,00,000
(C) ₹ 10,00,000
(D) ₹ 10,50,000
Answer:
(D) ₹ 10,50,000
Cost of acquisition = 7,500 × 160 = 12,00,000
Pre-acquisition dividend 7,500 × 10 75,000
Net cost = 12.00,000- 75,000 = 11,25,000
Net cost per share = 11,25,000 ÷ 7.500 = 150 per share
Cost of 500 shares sold = 500 × 150 = 75,000
Cost of remaining 7,000 shares = 11,25,000 – 75,000 10,50,000
OR 7,000 × 150= 10,50,000
lf the Investment A/c is prepared it will appear as Follows:
Question 73.
Total of assets side of subsidiary’s balance sheet is ₹ 8,10,000 which includes preliminary expense ₹ 8,000. Outsider’s liability in balance sheet was ₹ 1,60,000. Holding company holds 75% shares of subsidiary. Minority Interest = ?
(A) ₹ 2,02,500
(B) ₹ 1,62,500
(C) ₹ 1,60,500
(D) ₹ 1,64,500
Answer:
(C) ₹ 1,60,500
(8,10,000 – 8,000 – 1,60,000) × 25% = 160,500
Question 74.
₹ Ltd. acquired 80% equity shares in Y Ltd. on 1st July, 2019 at cost price of ₹ 4,48,000. Total equity share capital of Y Ltd. was ₹ 2,00,000. Share of ₹ Ltd. in pre acquisition profits of Y Ltd. was ₹ 1,27,000. Goodwill = ?
(A) ₹ 1,86,400
(B) ₹ 2,48,000
(C) ₹ 1,58,000
(D) ₹ 1,46,400
Answer:
(A) ₹ 1,86,400
Question 75.
S Ltd. had purchased goods of ₹ 80,000 from its holding company H Ltd. out of which goods invoiced at ₹ 50,000 were in stock on 31st March, 2020. H Ltd. added 25% to cost to arrive at invoice price. Stock reserve to be eliminated from the consolidated balance sheet = ?
(A) ₹ 10,000
(B) ₹ 12,500
(C) ₹ 16,000
(D) ₹ 20,000
Answer:
(A) ₹ 10,000
50,000 ×20% = 10,000
Question 76.
P Ltd. acquired 12,000 shares of ₹ 10 each in S Ltd. at ₹ 1,70,000 on 31st March, 2020 Details of S Ltd. on 31.3.2020 are given below:
Share Capital (₹ 10 each) — 1,50,000
Capital Reserve — 5,000
General Reserve — 1,05,000
Profit & Loss Account — 18,000
Fixed assets — 2,44,700
Interest receivable for the year ended 31.3.2020 amounting to ₹ 100 hr respect of a loan due by P Ltd. has not been credited in the accounts of S Ltd. The’directors decided to value fixed assets of S Ltd. at ₹ 2,39,700. What is the cost of control that will appear in consolidated balance sheet prepared for the year ended 31.3.2020?
(A) Capital Reserve ₹ 48,480
(B) Goodwill ₹ 50,000
(C) Goodwill ₹ 48,480
(D) Capital Reserve ₹ 46,120
Answer:
(A) Capital Reserve ₹ 48,480
Shortcut method lo calculate minority interest:
Minority share capital = 30,000
Share of minority in total profit = 5,000 (Capital Reserve) +1,05,000 (General
Reserve) + 18,000 (Profit & Loss A/c) + 100 (interest). 5,000 (Revaluation loss) × 20% = 24,620
Minority Interest = 30,000 + 24,620 = 54,620
Question 77.
Take the data of above question and calculate Minority Interest
(A) ₹ 54,620
(B) ₹ 56,420
(C) ₹ 54,260
(D) ₹ 52,460
Answer:
(A) ₹ 54,620
Shortcut method lo calculate minority interest:
Minority share capital = 30,000
Share of minority in total profit = 5,000 (Capital Reserve) +1,05,000 (General
Reserve) + 18,000 (Profit & Loss A/c) + 100 (interest). 5,000 (Revaluation loss) × 20% = 24,620
Minority Interest = 30,000 + 24,620 = 54,620
Question 78.
H Ltd. acquired as investment 15,000 shares in S Ltd. for ₹ 1,55,000 on 1.7.2018. Details of S Ltd. on 31.3.2019 are given below:
Share Capital (₹ 10 each) — 2,50,000
General Reserve — 40,000
Profit & Loss Account — 25,000
General reserve of S Ltd. has remained unchanged since 31.3.2018. Profit earned by S Ltd. for the year ended
31.3.2019 amounted to ₹ 20,000. Cost of control = ?
(A) ₹ 25,000 capital reserve
(B) ₹ 25,000 goodwill
(C) ₹ 5,000 goodwill
(D) ₹ 5,000 capital reserve
Answer:
(A) ₹ 25,000 capital reserve
Shortcut method to calculate minority in le rest:
Minority share capital 1,00,000
Share of minority in total profit = (40,000 + 25,000) × 40% = 26,000
Minority Interest 1,00,000 + 26,000 = 1,26,000
Question 79.
Take the data of above question and calculate Minority Interest?
(A) ₹ 1,06,000
(B) ₹ 1,16,000
(C) ₹ 1,26,000
(D) ₹ 1,36,000
Answer:
(C) ₹ 1,26,000
Shortcut method to calculate minority in le rest:
Minority share capital 1,00,000
Share of minority in total profit = (40,000 + 25,000) × 40% = 26,000
Minority Interest 1,00,000 + 26,000 = 1,26,000
Question 80.
Following are the details of S Ltd. on 31.3.2017: Share Capital (₹ 10 each) ₹ 2,00,000 Plant & Machinery ₹ 1,35,000 H Ltd. acquired 80% shares in S Ltd. on 1.10.2016. S Ltd.’s plant and machinery which stood at ₹ 1,50,000 on 1.4.2016 was considered worth ₹ 1,80,000 as on 1.10.2016, this figure is to be considered while consolidating the balance sheets. In consolidation balance sheet Plant & Machinery of S Ltd. will appear at -…………
(A) ₹ 5,06,225
(B) ₹ 5,25,835
(C) ₹ 1,70,625
(D) ₹ 5,40,345
Answer:
(C) ₹ 1,70,625
