SOLUTION MANUAL
ADVANCED ACCOUNTING IN CANADA
,1|P AGE
SOLUTIONS MANUAL FOR ADVANCED ACCOUNTING IN CANADA,
2ND CANADIAN EDITION BY NATHALIE JOHNSTONE AND KRISTIE
DEWALD TESTBANK|| COMPLETE TEST BANK WITH ALL CHAPTERS
INCLUDED|| LATEST AND FULLY COVERED VERSION 2026 GRADED A+
Chapter 01:
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
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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.
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.
1.2 Discuss The Conceptual Framework For Financial Reporting And The General
Purpose Of Financial Reporting.
1) 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
,3|P AGE
Taxonomy Category: Understanding
Learning Outcome: 1.2 Discuss The Conceptual Framework For Financial Reporting And The
General Purpose Of Financial Reporting.
1.3 Define And Identify 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: 1.3 Define And Identify Strategic And Non-Strategic Intercorporate
Investments Made By Reporting Entities.
2) What Is The Definition Of Control Provided In IFRS 10?
ANSWER: IFRS 10 States That An Investee Has Control Only When All Of The Following
Three Criteria Are Met: The Power Over The Investee, Exposure To The Variable Returns Of
The Investee, And The Ability To Use That Power To Affect The Earnings Of The Investee.
First, The Power To Direct The Relevant Activities Over The Investee Typically Arises From A
Right Such As Voting Rights, The Right To Choose Key Personnel Or Enforcement/Veto
Rights. Power Over The Relevant Activities Would Include The Ability To Direct The Selling
Or Buying Of Goods And Services, Direct Research And Development, Budgeting, And The
Management Of Financial Assets. Second, Variable Returns Are Defined As Not Fixed And
With The Potential To Vary As A Result Of The Performance Of The Investee. Finally, There
Must Be A Link Between The Power To Control The Relevant Activities And The Return On
The Investment.
,4|P AGE
Diff: 2 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 1.3 Define And Identify Strategic And Non-Strategic Intercorporate
Investments Made By Reporting Entities.
3) List The Four Different Classifications Of Investments And Provide A Definition For
Each Type Of Investment Classification.
ANSWER: The Four Classifications Along With A Definition Are Given Below:
1. Passive Investment Is An Equity Investment That Does Not Meet The Definition Of
An Associate (Significant Influence Under ASPE), Joint Arrangement, Or Subsidiary. These
Investments Tend To Be More Short Term And Temporary In Nature. These Can Be
Classified As Fair Value Through Other Comprehensive Income, Fair Value Through Profit
And Loss, And In Some Rare Cases, Cost.
2. Associate (Significant Influence Under ASPE) Is An Equity Investment Where The
Investor Has The Ability To Influence The Activities Of The Investee But Does Not Have
Control.
3. Joint Arrangement Is A Contractual Agreement Where The Parties Have Joint Control
Over The Investment. These Can Be Classified As Either Joint Ventures Or Joint Operations.
4. Subsidiary Is An Equity Investment Where The Investor Has The Ability To
Control The Activities Of The Investee.
Diff: 2 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 1.3 Define And Identify Strategic And Non-Strategic Intercorporate
Investments Made By Reporting Entities.
4) What Is A Financial Asset, And Would A Non-Strategic Equity Investment Be Included
In That Definition? ANSWER: A Financial Asset, As Defined In IAS 32, Is Any Of The
Following:
• Cash
• An Equity Investment In Another Company
• A Contractual Right To Receive Cash Or Another Asset From Another Company
,5|P AGE
• A Contractual Right To Exchange Another Financial Instrument Under Potentially
Favourable Conditions
Investments In Equities Are Listed In The Definition Of A Financial Asset; Therefore, A Non-
Strategic Equity Investment Would Meet The Definition.
Diff: 2 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 1.3 Define And Identify Strategic And Non-Strategic Intercorporate
Investments Made By Reporting Entities.
1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
1) 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. ANSWER: C
Diff: 1 Type: MC
Taxonomy Category: Understanding
Learning Outcome: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
2) 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.
,6|P AGE
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: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
3) 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: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
4) Which Of The Following Factors Is NOT An Indication Of An Investor Having
Significant Influence Over An Investee?
,7|P AGE
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 2 Of A 7-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: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
5) 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: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
,8|P AGE
6) 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: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
7) Below Is A List Of The Shareholders Holding Voting Common Shares In
Karam Co.: Kayman Corporation — 45% Peng Ltd. — 40%
Povhe Inc. — 15%
Kayman Corporation And Peng Ltd. Each Have 2 Seats On The 5-Person Board Of Directors.
Peng Ltd. Has Significant Intercompany Transactions With Karam Co. All Of The Companies
Report Under IFRS. Which Of The Following Statements Is True?
A) Kayman Corporation Controls Karam Co And Should Classify Its Investment
As A Subsidiary.
B) Peng Ltd. Has Significant Influence And Should Classify Its Investment As An Associate.
C) Peng Ltd. Should Classify Their Investment As A Passive Investment.
D) Peng Ltd. Controls Karam Co And Should Classify Its Investment As A Subsidiary.
ANSWER: B
Diff: 3 Type: MC
Taxonomy Category: Analyzing
, 9|P AGE
Learning Outcome: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
8) What Factors May Indicate That An Investor Has Significant Influence Over An Investee?
ANSWER: IAS 28 Defines Significant Influence As The Ability To Participate In Or Influence
The Operating, Investing, And Financial Policy Decisions Of The Investee. This Means That
The Investor Can Play A Role In The Income-Earning Process. IAS 28, Paragraph 6 Provides
Additional Guidance In Determining The Ability To Influence The Activities Of The Investee
As:
• The Ability To Choose Some Representation On The Investee's Board Of Directors.
• The Ability To Participate In Shaping The Policies Of The Investee.
• Significant Intercompany Transactions Between The Investee And Investor. The
Definition Of Significant Intercompany Transactions Requires Professional Judgment.
• The Loaning Of Management Personnel To The Investee.
• The Investor Holds Essential Technical Knowledge, Patented Technology, Or
Processes Needed By The Investee.
Diff: 2 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
1.5 Compare The Classification Requirements Of IFRS And ASPE.
1) In Canada, A Private Profit-Oriented Corporation May Report Under International Financial
Reporting Standards (IFRS) Or Accounting Standards For Private Enterprises (ASPE). Explain
The Rationale For Having The Option, And How The Investment Classification Would Differ.
ANSWER: Accounting For Equity Investments Can Be More Complex Than Required In ASPE.
The Reason For Offering ASPE To Private Companies Is To Remove Some Of Those
Complexities For Closely Held Organizations And Their Financial Statement Users. When A
Company Is Closely Held, The Owners Tend To Be More Involved With The Running Of The
Entity And Therefore Have Access To The Inner Working Of The Business. The Following Are
Differences In The Classification Of Equity Investments Under IFRS And ASPE:
ADVANCED ACCOUNTING IN CANADA
,1|P AGE
SOLUTIONS MANUAL FOR ADVANCED ACCOUNTING IN CANADA,
2ND CANADIAN EDITION BY NATHALIE JOHNSTONE AND KRISTIE
DEWALD TESTBANK|| COMPLETE TEST BANK WITH ALL CHAPTERS
INCLUDED|| LATEST AND FULLY COVERED VERSION 2026 GRADED A+
Chapter 01:
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
,2|P AGE
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.
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.
1.2 Discuss The Conceptual Framework For Financial Reporting And The General
Purpose Of Financial Reporting.
1) 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
,3|P AGE
Taxonomy Category: Understanding
Learning Outcome: 1.2 Discuss The Conceptual Framework For Financial Reporting And The
General Purpose Of Financial Reporting.
1.3 Define And Identify 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: 1.3 Define And Identify Strategic And Non-Strategic Intercorporate
Investments Made By Reporting Entities.
2) What Is The Definition Of Control Provided In IFRS 10?
ANSWER: IFRS 10 States That An Investee Has Control Only When All Of The Following
Three Criteria Are Met: The Power Over The Investee, Exposure To The Variable Returns Of
The Investee, And The Ability To Use That Power To Affect The Earnings Of The Investee.
First, The Power To Direct The Relevant Activities Over The Investee Typically Arises From A
Right Such As Voting Rights, The Right To Choose Key Personnel Or Enforcement/Veto
Rights. Power Over The Relevant Activities Would Include The Ability To Direct The Selling
Or Buying Of Goods And Services, Direct Research And Development, Budgeting, And The
Management Of Financial Assets. Second, Variable Returns Are Defined As Not Fixed And
With The Potential To Vary As A Result Of The Performance Of The Investee. Finally, There
Must Be A Link Between The Power To Control The Relevant Activities And The Return On
The Investment.
,4|P AGE
Diff: 2 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 1.3 Define And Identify Strategic And Non-Strategic Intercorporate
Investments Made By Reporting Entities.
3) List The Four Different Classifications Of Investments And Provide A Definition For
Each Type Of Investment Classification.
ANSWER: The Four Classifications Along With A Definition Are Given Below:
1. Passive Investment Is An Equity Investment That Does Not Meet The Definition Of
An Associate (Significant Influence Under ASPE), Joint Arrangement, Or Subsidiary. These
Investments Tend To Be More Short Term And Temporary In Nature. These Can Be
Classified As Fair Value Through Other Comprehensive Income, Fair Value Through Profit
And Loss, And In Some Rare Cases, Cost.
2. Associate (Significant Influence Under ASPE) Is An Equity Investment Where The
Investor Has The Ability To Influence The Activities Of The Investee But Does Not Have
Control.
3. Joint Arrangement Is A Contractual Agreement Where The Parties Have Joint Control
Over The Investment. These Can Be Classified As Either Joint Ventures Or Joint Operations.
4. Subsidiary Is An Equity Investment Where The Investor Has The Ability To
Control The Activities Of The Investee.
Diff: 2 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 1.3 Define And Identify Strategic And Non-Strategic Intercorporate
Investments Made By Reporting Entities.
4) What Is A Financial Asset, And Would A Non-Strategic Equity Investment Be Included
In That Definition? ANSWER: A Financial Asset, As Defined In IAS 32, Is Any Of The
Following:
• Cash
• An Equity Investment In Another Company
• A Contractual Right To Receive Cash Or Another Asset From Another Company
,5|P AGE
• A Contractual Right To Exchange Another Financial Instrument Under Potentially
Favourable Conditions
Investments In Equities Are Listed In The Definition Of A Financial Asset; Therefore, A Non-
Strategic Equity Investment Would Meet The Definition.
Diff: 2 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 1.3 Define And Identify Strategic And Non-Strategic Intercorporate
Investments Made By Reporting Entities.
1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
1) 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. ANSWER: C
Diff: 1 Type: MC
Taxonomy Category: Understanding
Learning Outcome: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
2) 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.
,6|P AGE
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: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
3) 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: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
4) Which Of The Following Factors Is NOT An Indication Of An Investor Having
Significant Influence Over An Investee?
,7|P AGE
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 2 Of A 7-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: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
5) 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: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
,8|P AGE
6) 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: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
7) Below Is A List Of The Shareholders Holding Voting Common Shares In
Karam Co.: Kayman Corporation — 45% Peng Ltd. — 40%
Povhe Inc. — 15%
Kayman Corporation And Peng Ltd. Each Have 2 Seats On The 5-Person Board Of Directors.
Peng Ltd. Has Significant Intercompany Transactions With Karam Co. All Of The Companies
Report Under IFRS. Which Of The Following Statements Is True?
A) Kayman Corporation Controls Karam Co And Should Classify Its Investment
As A Subsidiary.
B) Peng Ltd. Has Significant Influence And Should Classify Its Investment As An Associate.
C) Peng Ltd. Should Classify Their Investment As A Passive Investment.
D) Peng Ltd. Controls Karam Co And Should Classify Its Investment As A Subsidiary.
ANSWER: B
Diff: 3 Type: MC
Taxonomy Category: Analyzing
, 9|P AGE
Learning Outcome: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
8) What Factors May Indicate That An Investor Has Significant Influence Over An Investee?
ANSWER: IAS 28 Defines Significant Influence As The Ability To Participate In Or Influence
The Operating, Investing, And Financial Policy Decisions Of The Investee. This Means That
The Investor Can Play A Role In The Income-Earning Process. IAS 28, Paragraph 6 Provides
Additional Guidance In Determining The Ability To Influence The Activities Of The Investee
As:
• The Ability To Choose Some Representation On The Investee's Board Of Directors.
• The Ability To Participate In Shaping The Policies Of The Investee.
• Significant Intercompany Transactions Between The Investee And Investor. The
Definition Of Significant Intercompany Transactions Requires Professional Judgment.
• The Loaning Of Management Personnel To The Investee.
• The Investor Holds Essential Technical Knowledge, Patented Technology, Or
Processes Needed By The Investee.
Diff: 2 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 1.4 Determine The Classification For Accounting Purposes Of Each
Intercorporate Investment.
1.5 Compare The Classification Requirements Of IFRS And ASPE.
1) In Canada, A Private Profit-Oriented Corporation May Report Under International Financial
Reporting Standards (IFRS) Or Accounting Standards For Private Enterprises (ASPE). Explain
The Rationale For Having The Option, And How The Investment Classification Would Differ.
ANSWER: Accounting For Equity Investments Can Be More Complex Than Required In ASPE.
The Reason For Offering ASPE To Private Companies Is To Remove Some Of Those
Complexities For Closely Held Organizations And Their Financial Statement Users. When A
Company Is Closely Held, The Owners Tend To Be More Involved With The Running Of The
Entity And Therefore Have Access To The Inner Working Of The Business. The Following Are
Differences In The Classification Of Equity Investments Under IFRS And ASPE:
