TEST ITEM FILE
Nathalie Johnstone
University of Saskatchewan
Advanced Financial
Accounting in Canada
Second Edition
Nathalie Johnstone, Kristie Dewald,
and Cheryl Wilson
ISBN: A103000354295
Table of Contents
1 Introduction to Advanced Financial Accounting
2 Accounting for Non-Controlled Investments
3 Introduction to Business Combinations
4 Control Investments: Subsequent Measurements with Wholly Owned Investments
5 Control Investments: Intercompany Transactions with Wholly Owned Subsidiaries
,ii
6 Control Investment of Non-Wholly Owned Subsidiaries
7 Accounting for Associates (Revisited) and Joint Arrangements
8 Control Investments—Other Reporting Issues
9 Foreign Currency Transactions
10 Translation and Consolidation of Foreign Operations
11 Accounting for Not-for-Profit Organization
Advanced Financial Accounting in Canada, 2Ce (Johnstone)
Chapter 1 Introduction to Advanced Financial Accounting
1.1 Describe the accounting standards used in Canada and how they apply to different
reporting entities.
1) A private company in Canada that is closely held, has no debt, and wants to simplify the
accounting process is most likely to report under which part of the CPA Canada Handbook?
A) Part II — Accounting Standards for Private Enterprises (ASPE)
B) Part IV — Accounting Standards for Pensions
C) Part I — International Financial Reporting Standards (IFRS)
D) Part III — Accounting Standards for Not-for-Profit Organizations
Answer: A
Diff: 1 Type: MC
Taxonomy Category: Understanding
Learning Outcome: 1.1 Describe the accounting standards used in Canada and how they apply to
different reporting entities.
2) In Canada, a private company has the choice to report under International Financial Reporting
Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE). Describe why the CPA
Canada Handbook provides the option for private enterprises.
Answer: IFRS is meant to create consistency and comparability in international markets. One of the
limitations of IFRS is the complexity of reporting for equity investments that are meant to provide
information to shareholders for decision-making purposes. Many private companies are held by a
small group of shareholders who are often involved in the running of the business or have access to
that information. As a result, the cost of applying more complex accounting policies outweighs the
benefit of the information provided to this closely held group of shareholders. To address this, the
Accounting Standards Board developed the Accounting Standards for Private Enterprises to meet the
needs of private enterprises. Private enterprises have the option to adopt IFRS or ASPE depending on
the needs of the financial statement users.
Diff: 2 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 1.1 Describe the accounting standards used in Canada and how they apply to
different reporting entities.
Copyright © 2026 Pearson Canada Inc.
, Open-Book Testing: Why It Makes Sense iii
3) What are the four parts of the CPA Canada Handbook — Accounting and which entities are they
applicable to?
Answer: The four parts are:
• Part I — International Financial Reporting Standards (IFRS) — applicable to publicly accountable,
private, or not-for-profit entities.
• Part II — Accounting Standards for Private Enterprises (ASPE) — applicable to private entities.
• Part III — Accounting Standards for Not-for-Profit Organizations — applicable to not-for-profit
entities.
• Part IV — Accounting Standards for Pension Plans — applicable to pension plans.
Diff: 1 Type: ES
Taxonomy Category: Remembering
Learning Outcome: 1.1 Describe the accounting standards used in Canada and how they apply to
different reporting entities.
4) In 2011, Canada adopted International Financial Reporting Standards (IFRS) for publicly
accountable enterprises. Explain the rationale for adopting IFRS in Canada.
Answer: As the global economy expanded, the Accounting Standards Board (AcSB) chose to adopt
IFRS in Canada to improve consistency and comparability in the international capital markets.
Diff: 1 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 1.1 Describe the accounting standards used in Canada and how they apply to
different reporting entities.
1.2 Define, identify, and classify strategic and non-strategic intercorporate investments made
by reporting entities.
1) Laliberte Products Ltd. (LPL), a public company, made several equity investments in the current
year. Which of the following investments would most likely be classified as an associate in LPL's
financial statements?
A) 25,000 of the 30,000 outstanding voting common shares of Glabman Inc. There are significant
intercompany transactions between the two companies.
B) 13,500 of the 45,000 outstanding voting common shares of CCL Ltd. There are significant
intercompany transactions between the two companies.
C) 1,000 of the 20,000 outstanding voting common shares of Petruck Inc. There are no transactions
between the two corporations and LPL plans to hold these shares for less than a year.
D) 3,000 of the 3,500 outstanding non-voting preferred shares of Paradise Ltd. There is a small
number of intercompany transactions between the two companies.
Answer: B
Diff: 2 Type: MC
Taxonomy Category: Analyzing
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
2) Which of the following is NOT an indicator of significant influence?
A) There are significant intercompany transactions between the investor and investee.
B) The investor has the ability to shape the policies of the investee.
C) The investor and investee are located in the same city and use the same legal firm.
D) The ability to choose representation on the investee's board of directors or governing body.
,iv
Answer: C
Diff: 1 Type: MC
Taxonomy Category: Understanding
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
Copyright © 2026 Pearson Canada Inc.
, Open-Book Testing: Why It Makes Sense v
3) Kemi Inc., a public company following IFRS, owns 25% of the voting shares of Eunji Ltd. The next
largest shareholder owns 15% of the voting shares. Kemi Inc. has some intercompany transactions
with Eunji Ltd. and has the ability to elect one of the five members of the board of directors. Which of
the following statements best describes how Kemi Inc. should account for its investment in Eunji
Ltd.?
A) Kemi Inc. should classify Eunji Ltd. as an associate and use proportionate consolidation to account
for its investment.
B) Kemi Inc. should classify Eunji as a passive investment and account for the investment using the
equity method to account for its investment.
C) Kemi Inc. controls Eunji Ltd. and should use the consolidation method to account for its
investment.
D) Kemi Inc. should classify Eunji Ltd. as an associate and use the equity method to account for its
investment.
Answer: D
Diff: 3 Type: MC
Taxonomy Category: Analyzing
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
4) Which of the following investments in equity investments held by MajaCo (MC) would NOT be
classified as a subsidiary?
A) MC owns 49% of the voting shares of DeltaCo (DC). No other investor owns more than 2% of the
remaining voting shares.
B) MC owns 50% of the voting shares of Epsilon Ltd. (EL). JakovCo owns the other 50% of the voting
shares. The two companies agree that they will participate equally in the running of EL.
C) MC owns 75% of the voting shares of TC Inc.
D) MC owns 45% of the voting shares of FishelCo. A wholly owned subsidiary of MC owns 25% of
the voting shares of FishelCo. The remaining shares are widely held.
Answer: B
Diff: 3 Type: MC
Taxonomy Category: Evaluating
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
5) Which of the following factors is NOT an indication of an investor having significant influence
over an investee?
A) Ownership of 19% of the voting shares of ABC Corporation, where the remaining voting shares
are owned by a husband and wife
B) The ability to elect two members of a seven-member board of directors
C) Significant intercompany transactions between the investor and investee
D) The ability to participate in the shaping of the policies of an investee
Answer: A
Diff: 2 Type: MC
Taxonomy Category: Analyzing
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
, vi
6) In the current year, AcqCo Ltd., a private company reporting under ASPE, purchased 42% of the
voting shares of Woodward Inc. The remaining 58% of the voting shares are held by the original
founder and her immediate family. To date, the family has elected all of the board members, and
AcqCo Ltd. has not been able to obtain a seat on the board of directors.
AcqCo Ltd. does not have any intercompany transactions with Woodward Inc. nor is there any
exchange of management or technology. How should AcqCo Ltd. classify its investment in
Woodward Inc.?
A) Subsidiary
B) Associate
C) Passive investment with the option to classify as a fair value through other comprehensive income
or fair value through profit and loss
D) Passive investment with the option to classify the investment as a fair value through profit and
loss or as a cost investment
Answer: D
Diff: 2 Type: MC
Taxonomy Category: Analyzing
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
7) ABC Corporation Inc. (ABC) owns 60% of the voting common shares of Reich Corporation Ltd.
(RCL), while TieCo owns 25%, and Platinum Inc. (PI) owns the remaining 15%. ABC has significant
intercompany transactions with RCL. TieCo and PI have no intercompany transactions with RCL.
ABC appoints eight of RCL's 10 board members; TieCo and PI each appoint one board member.
Which of the following statements is TRUE?
A) TieCo has significant influence over RCL.
B) TieCo and PI have significant influence over RCL.
C) TieCo has no influence over RCL and should classify their investment in RCL as a passive
investment.
D) ABC should classify its investment in RCL as an associate since it does not have control of RCL.
Answer: C
Diff: 2 Type: MC
Taxonomy Category: Analyzing
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
Copyright © 2026 Pearson Canada Inc.
Nathalie Johnstone
University of Saskatchewan
Advanced Financial
Accounting in Canada
Second Edition
Nathalie Johnstone, Kristie Dewald,
and Cheryl Wilson
ISBN: A103000354295
Table of Contents
1 Introduction to Advanced Financial Accounting
2 Accounting for Non-Controlled Investments
3 Introduction to Business Combinations
4 Control Investments: Subsequent Measurements with Wholly Owned Investments
5 Control Investments: Intercompany Transactions with Wholly Owned Subsidiaries
,ii
6 Control Investment of Non-Wholly Owned Subsidiaries
7 Accounting for Associates (Revisited) and Joint Arrangements
8 Control Investments—Other Reporting Issues
9 Foreign Currency Transactions
10 Translation and Consolidation of Foreign Operations
11 Accounting for Not-for-Profit Organization
Advanced Financial Accounting in Canada, 2Ce (Johnstone)
Chapter 1 Introduction to Advanced Financial Accounting
1.1 Describe the accounting standards used in Canada and how they apply to different
reporting entities.
1) A private company in Canada that is closely held, has no debt, and wants to simplify the
accounting process is most likely to report under which part of the CPA Canada Handbook?
A) Part II — Accounting Standards for Private Enterprises (ASPE)
B) Part IV — Accounting Standards for Pensions
C) Part I — International Financial Reporting Standards (IFRS)
D) Part III — Accounting Standards for Not-for-Profit Organizations
Answer: A
Diff: 1 Type: MC
Taxonomy Category: Understanding
Learning Outcome: 1.1 Describe the accounting standards used in Canada and how they apply to
different reporting entities.
2) In Canada, a private company has the choice to report under International Financial Reporting
Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE). Describe why the CPA
Canada Handbook provides the option for private enterprises.
Answer: IFRS is meant to create consistency and comparability in international markets. One of the
limitations of IFRS is the complexity of reporting for equity investments that are meant to provide
information to shareholders for decision-making purposes. Many private companies are held by a
small group of shareholders who are often involved in the running of the business or have access to
that information. As a result, the cost of applying more complex accounting policies outweighs the
benefit of the information provided to this closely held group of shareholders. To address this, the
Accounting Standards Board developed the Accounting Standards for Private Enterprises to meet the
needs of private enterprises. Private enterprises have the option to adopt IFRS or ASPE depending on
the needs of the financial statement users.
Diff: 2 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 1.1 Describe the accounting standards used in Canada and how they apply to
different reporting entities.
Copyright © 2026 Pearson Canada Inc.
, Open-Book Testing: Why It Makes Sense iii
3) What are the four parts of the CPA Canada Handbook — Accounting and which entities are they
applicable to?
Answer: The four parts are:
• Part I — International Financial Reporting Standards (IFRS) — applicable to publicly accountable,
private, or not-for-profit entities.
• Part II — Accounting Standards for Private Enterprises (ASPE) — applicable to private entities.
• Part III — Accounting Standards for Not-for-Profit Organizations — applicable to not-for-profit
entities.
• Part IV — Accounting Standards for Pension Plans — applicable to pension plans.
Diff: 1 Type: ES
Taxonomy Category: Remembering
Learning Outcome: 1.1 Describe the accounting standards used in Canada and how they apply to
different reporting entities.
4) In 2011, Canada adopted International Financial Reporting Standards (IFRS) for publicly
accountable enterprises. Explain the rationale for adopting IFRS in Canada.
Answer: As the global economy expanded, the Accounting Standards Board (AcSB) chose to adopt
IFRS in Canada to improve consistency and comparability in the international capital markets.
Diff: 1 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 1.1 Describe the accounting standards used in Canada and how they apply to
different reporting entities.
1.2 Define, identify, and classify strategic and non-strategic intercorporate investments made
by reporting entities.
1) Laliberte Products Ltd. (LPL), a public company, made several equity investments in the current
year. Which of the following investments would most likely be classified as an associate in LPL's
financial statements?
A) 25,000 of the 30,000 outstanding voting common shares of Glabman Inc. There are significant
intercompany transactions between the two companies.
B) 13,500 of the 45,000 outstanding voting common shares of CCL Ltd. There are significant
intercompany transactions between the two companies.
C) 1,000 of the 20,000 outstanding voting common shares of Petruck Inc. There are no transactions
between the two corporations and LPL plans to hold these shares for less than a year.
D) 3,000 of the 3,500 outstanding non-voting preferred shares of Paradise Ltd. There is a small
number of intercompany transactions between the two companies.
Answer: B
Diff: 2 Type: MC
Taxonomy Category: Analyzing
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
2) Which of the following is NOT an indicator of significant influence?
A) There are significant intercompany transactions between the investor and investee.
B) The investor has the ability to shape the policies of the investee.
C) The investor and investee are located in the same city and use the same legal firm.
D) The ability to choose representation on the investee's board of directors or governing body.
,iv
Answer: C
Diff: 1 Type: MC
Taxonomy Category: Understanding
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
Copyright © 2026 Pearson Canada Inc.
, Open-Book Testing: Why It Makes Sense v
3) Kemi Inc., a public company following IFRS, owns 25% of the voting shares of Eunji Ltd. The next
largest shareholder owns 15% of the voting shares. Kemi Inc. has some intercompany transactions
with Eunji Ltd. and has the ability to elect one of the five members of the board of directors. Which of
the following statements best describes how Kemi Inc. should account for its investment in Eunji
Ltd.?
A) Kemi Inc. should classify Eunji Ltd. as an associate and use proportionate consolidation to account
for its investment.
B) Kemi Inc. should classify Eunji as a passive investment and account for the investment using the
equity method to account for its investment.
C) Kemi Inc. controls Eunji Ltd. and should use the consolidation method to account for its
investment.
D) Kemi Inc. should classify Eunji Ltd. as an associate and use the equity method to account for its
investment.
Answer: D
Diff: 3 Type: MC
Taxonomy Category: Analyzing
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
4) Which of the following investments in equity investments held by MajaCo (MC) would NOT be
classified as a subsidiary?
A) MC owns 49% of the voting shares of DeltaCo (DC). No other investor owns more than 2% of the
remaining voting shares.
B) MC owns 50% of the voting shares of Epsilon Ltd. (EL). JakovCo owns the other 50% of the voting
shares. The two companies agree that they will participate equally in the running of EL.
C) MC owns 75% of the voting shares of TC Inc.
D) MC owns 45% of the voting shares of FishelCo. A wholly owned subsidiary of MC owns 25% of
the voting shares of FishelCo. The remaining shares are widely held.
Answer: B
Diff: 3 Type: MC
Taxonomy Category: Evaluating
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
5) Which of the following factors is NOT an indication of an investor having significant influence
over an investee?
A) Ownership of 19% of the voting shares of ABC Corporation, where the remaining voting shares
are owned by a husband and wife
B) The ability to elect two members of a seven-member board of directors
C) Significant intercompany transactions between the investor and investee
D) The ability to participate in the shaping of the policies of an investee
Answer: A
Diff: 2 Type: MC
Taxonomy Category: Analyzing
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
, vi
6) In the current year, AcqCo Ltd., a private company reporting under ASPE, purchased 42% of the
voting shares of Woodward Inc. The remaining 58% of the voting shares are held by the original
founder and her immediate family. To date, the family has elected all of the board members, and
AcqCo Ltd. has not been able to obtain a seat on the board of directors.
AcqCo Ltd. does not have any intercompany transactions with Woodward Inc. nor is there any
exchange of management or technology. How should AcqCo Ltd. classify its investment in
Woodward Inc.?
A) Subsidiary
B) Associate
C) Passive investment with the option to classify as a fair value through other comprehensive income
or fair value through profit and loss
D) Passive investment with the option to classify the investment as a fair value through profit and
loss or as a cost investment
Answer: D
Diff: 2 Type: MC
Taxonomy Category: Analyzing
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
7) ABC Corporation Inc. (ABC) owns 60% of the voting common shares of Reich Corporation Ltd.
(RCL), while TieCo owns 25%, and Platinum Inc. (PI) owns the remaining 15%. ABC has significant
intercompany transactions with RCL. TieCo and PI have no intercompany transactions with RCL.
ABC appoints eight of RCL's 10 board members; TieCo and PI each appoint one board member.
Which of the following statements is TRUE?
A) TieCo has significant influence over RCL.
B) TieCo and PI have significant influence over RCL.
C) TieCo has no influence over RCL and should classify their investment in RCL as a passive
investment.
D) ABC should classify its investment in RCL as an associate since it does not have control of RCL.
Answer: C
Diff: 2 Type: MC
Taxonomy Category: Analyzing
Learning Outcome: 1.2 Define, identify, and classify strategic and non-strategic intercorporate
investments made by reporting entities.
Copyright © 2026 Pearson Canada Inc.
