AASB 3 Specifies That Where a Parent Entity Purchases Additional

question 2

Multiple Choice

AASB 3 specifies that where a parent entity purchases additional shares in a subsidiary over time:

• A) No further goodwill on purchase may be recognised. Any excess payment over the fair value of the additional net assets purchased is to be written off in the period of the purchase.
• B) Each purchase of shares is to be treated as part of a single, combined purchase so that the amount of goodwill reported in the consolidated financial statements cannot be increased at the discretion of the controlling entity.
• C) Goodwill would be recognised by a single consolidation journal entry at that point in time when the parent entity ultimately gains control of the subsidiary.
• D) The parent entity may choose between treating the purchases separately or combining them into a single transaction.
• E) None of the given answers.

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Definitions:

Total Cost Ratio

Represents the sum of all costs (fixed and variable) associated with production, expressed as a ratio over a specific period.

Elasticity

An economic measure of the responsiveness of the quantity demanded or supplied of a good or service to changes in its price or consumer income.

Unit Wages

The cost of labor per unit of output, measuring how much is paid in wages for the production of one unit of a good or service.

Employed Workers

Individuals actively engaged in a job or business who are receiving compensation for their labor.