In the Situation in Which a Subsidiary Revalues Its Non-Current

question 67

Multiple Choice

In the situation in which a subsidiary revalues its non-current assets to fair value in its books as part of being acquired by a parent entity,the accounting treatment is:

• A) To treat the revaluation according to AASB 116 'Property, plant and equipment' in the books of the subsidiary entity.
• B) To create an asset revaluation reserve in the consolidated accounts and write it off against the parent entity's investment in the subsidiary.
• C) To adjust the investment recorded by the parent entity so that the entry balances in the elimination entry.
• D) Determined by AASB 127 'Consolidated and Separate Financial Statements', which is concerned with the treatment of the revaluation in the books of the controlled entity. It requires the adjustment to fair value to be written off to the income statement.
• E) None of the given answers.

Understand the principles of equity method accounting.

Calculate return on total assets and understand its significance.

Understand the consolidation process for financial statements.

Recognize and account for unrealized gains and losses.

---

Definitions:

Converging Plates

The movement of two tectonic plates towards each other, often leading to geological features like mountains, earthquakes, and volcanoes.

Seafloor Spreading

The process by which new oceanic crust is formed at mid-ocean ridges and slowly moves away from them, caused by the divergence of tectonic plates.

Rifting

The process of the Earth's crust being pulled apart, leading to the formation of rift valleys and, eventually, new ocean basins.

Hurricane Sandy

A tropical cyclone that hit the Caribbean and United States in October 2012, causing widespread destruction and flooding, particularly in New York and New Jersey.