When a Parent Entity Has Previously Held an Investment in a Subsidiary

question 22

Multiple Choice

When a parent entity has previously held an investment in a subsidiary prior to gaining control the effect on the consolidation process is as follows:

• A)there is no impact
• B)the change in the fair value of the previously held interest is recognised in profit or loss
• C)the change in the fair value of the previously held interest is recognised in retained earnings
• D)the change in the fair value of the previously held interest is recognised in other comprehensive income

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Definitions:

Market Risk Premium

The additional return expected by investors for taking on the higher risk of investing in the stock market over a risk-free rate.

Systematic Risk

Systematic risk refers to the inherent risk that affects the entire market or a large segment of the market, often influenced by macroeconomic factors such as inflation, political turmoil, or changes in interest rates.

Individual Security

An individual security refers to a specific financial instrument such as a stock or bond, representing ownership in a company or an obligation owed by an entity.

Market Risk Premium

The additional return expected by investors for holding a risky market portfolio instead of risk-free securities.