Which of the Following Statements Accurately Describes Important Aspects of Consolidation

question 54

Multiple Choice

Which of the following statements accurately describes important aspects of consolidation after the date of acquisition?

• A) The elimination entry is made only the first time the consolidation is conducted. Any goodwill arising from the purchase is amortised over the appropriate period (not more than 20 years) and any excess will have been written off in the first year's elimination entry. Post-acquisition earnings are considered to be part of the group's earnings.
• B) The elimination entry will be made each time the consolidation is undertaken. Goodwill arising on consolidation will be recognised. If the controlled entity was purchased at a discount the excess is recognised as a gain in the profit or loss on the acquisition date
• C) The elimination entry is made each time the consolidation is undertaken. If an excess arises on consolidation it is completely written off in the first year and is not included in the consolidation worksheet entries again. If goodwill arises it is recognised for the full amount at acquisition and amortised over a period not exceeding 20 years. Any earnings made by the controlled entity after acquisition belongs to the parent entity and should be reflected in the consolidated accounts and the parent entity's books.
• D) The elimination entry will be made each time the consolidation is undertaken, but the amount of goodwill or excess recognised each time will change. The excess will be written off in the first period and the goodwill amortised over an appropriate period (not exceeding 20 years). The goodwill expense will be recognised in the books of the parent company and matched against the post-acquisition earnings of the controlled entity. Any remaining surplus is treated as income in the consolidated accounts.

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Definitions:

Architect's Fee

The compensation a client pays to an architect for their professional services in designing buildings or structures.

Patent

A legal right granted by the government to an inventor for a limited time, preventing others from making, using, or selling the invention without permission.

Amortization Expense

The systematic allocation of the cost of an intangible asset over its useful life, reflecting its consumption or decline in value.

Useful Life

The expected period over which a fixed asset is projected to be usable by a company, affecting its depreciation or amortization schedules.