Where the Parent Entity Holds Less Than 100 Per Cent

question 16

Multiple Choice

Where the parent entity holds less than 100 per cent interest in a subsidiary,AASB 10 requires the remaining shareholders' interests in what items to be disclosed?

• A) the subsidiary's share capital and reserves
• B) the subsidiary's profit or loss
• C) the subsidiary's current and non-current assets
• D) the subsidiary's share capital and reserves and the subsidiary's profit or loss

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Definitions:

Agency Costs

Expenses, either direct or indirect, that are borne by a principal as a result of having delegated authority to an agent. An example is the costs borne by shareholders to encourage managers to maximize a firm’s stock price rather than act in their own self-interests. These costs may also arise from lost efficiency and the expense of monitoring management to ensure that debtholders’ rights are protected.

Bankruptcy Costs

Expenses and fees associated with the process of declaring bankruptcy, including legal, administrative, and any potential asset liquidation costs.

Business Risk

The risk inherent in the operations of the firm, prior to the financing decision. Thus, business risk is the uncertainty inherent in a total risk sense, future operating income, or earnings before interest and taxes. Business risk is caused by many factors. Two of the most important are sales variability and operating leverage.

Standard Deviation

A statistical measure of the dispersion or variability of a set of data points, often used in finance to gauge investment risk.