Week 7

1. A business combination is defined in AASB 3 as a transaction:

a. in which an acquiree obtains control of one or more businesses.

b. in which one entity obtains significant influence over one or more other entities.
c. or other event in which an acquirer obtains control of one or more businesses.
d. or other event in which an entity obtains control of one or more businesses.

2. The date on which the acquirer obtains control of the acquiree is referred to as the:

a. business combination date.

b. acquisition date.
c. control date.
d. purchase date.

3. Where the acquirer purchases the assets and assumes the liabilities of another entity, it does not need
to consider the measurement of:

a. the liabilities assumed.

b. the identifiable assets.
c. the equity of the acquiree.
d. goodwill or a gain from bargain purchase.
 Goodwill is a residual figure.

4. According to the Conceptual Framework, recognition of an asset occurs if it is probable that future
economic benefits will flow to the entity and:

a. it has a value that can be measured with reliability.

b. it is a non-current asset.
c. it has a value that can be measured with certainty.
d, it is a current asset.
 Recognition= capitalisation.

5. Which of the following is an example of asset recognised by the acquirer as part of a business
combination but that is not recognised by the acquiree?

a. Inventory
b. Land and buildings
c. Prepaid insurance
d. Internally generated brand

6. The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at measurement date is defined in AASB 3 Business Combinations as the:

a. market value.
b. fair value.
c. present value.
d. current replacement cost.

7. According to AASB 3 Business Combinations, the appropriate accounting treatment for the costs of
issuing shares by the acquirer as part of a business combination is to record them as a debit to:

a. share capital.
b. share issue reserve.
 c. retained earnings.
d. acquisition expenses.

8. Under AASB 3 Business Combinations, a gain on bargain purchase arises when the acquirer’s interest
in the net fair value of the acquiree’s identifiable assets and liabilities is:

a. less than the carrying amount of the net assets acquired.

b. less than the consideration transferred.
c. greater than the consideration transferred.
d. more than the book values of the identifiable assets acquired.

9. Maroons Limited acquired the net assets and contingent liabilities of Lewis Limited for $60 000.
Lewis Limited's net assets and contingent liabilities were: total assets $84 000; total liabilities $10
000; and contingent liabilities $12 000. Maroons Limited will record a:

a. goodwill of $2000.
b. gain on bargain purchase of $2000. $84,000- $10,000- $12,000= $62,000 < $60,000 (price we
pay)
c. goodwill of $14 000.
d. gain on bargain purchase of $60 000.

10. Bellvista Limited acquired the net assets and contingent liabilities of Aroona Limited for a purchase
consideration of $600 000. Aroona Limited's net assets and contingent liabilities at fair value were: total
assets $840 000; total liabilities $300 000; and contingent liabilities $100 000. The amount of goodwill
to be recognised by Bellvista Limited when recording the business combination is:

a. $160 000. $840,000- $300,000-$100,000= $440,000 < $600,000

b. $260 000.
c. $400 000.

Week 8

1. The preparation of consolidated financial statements involves:

a. adding together the financial statements of the investor and the associate.
b. adjusting entries in the accounting records of the subsidiary.
*c. adding together the financial statements of the parent and the subsidiaries.
d. adjusting entries in the accounting records of the parent.

2. Kerri Limited has two subsidiary entities, Emily Limited and Georgia Limited. Kerri Limited owns
100% of the shares in both entities. Details of the issued share capital are:
- Kerri Limited $200 000
- Emily Limited $60 000
- Georgia Limited $30 000
The consolidated share capital amount of the Kerri Emily Georgia group is:

a. $230 000.
b. $90 000.
*c. $200 000.
d. $290 000.
3. If the consideration transferred is greater than the acquired interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities of the acquiree:

a. a gain on bargain purchase results.

*b. goodwill has been purchased and must be recognised on consolidation.
c. the difference is treated as a special equity reserve in the acquirer’s accounting records.
d. the difference is immediately charged to profit or loss in the period in which the business
combination occurred.

4. Which of the following statements is incorrect?

*a. The business combination valuation reserve is an account recorded in the

subsidiary’s records.
b. The acquisition analysis may include the recognition of assets and liabilities not recognised in
the subsidiary’s records.
c. The acquisition analysis will determine whether any goodwill or gain on bargain purchase has
arisen as a part of the business combination.
d. An acquisition analysis is prepared at acquisition date to identify the identifiable assets and
liabilities of the subsidiary at fair value.

5. The pre-acquisition entry is necessary to:

a. avoid overstating the equity and net assets of the parent.

b. record the ‘Shares in subsidiary’ account in the parents records.
*c. avoid overstating the equity and net assets of the group.
d. avoid understating the equity and net assets of the group.

6. Sippy Ltd acquired 100% of the share capital of Downs Ltd when the carrying value of Downs Ltd’s
plant and machinery was $100 000. The fair value of the plant on acquisition date was $150 000. The
company tax rate was 30%. What is the amount of the business combination valuation reserve that must
be recognised on consolidation?

a. $15 000
*b. $35 000
c. $50 000
d. $150 000

7. Water Limited acquired Boy Limited for a purchase consideration of $110 000. At acquisition date the
fair value of the Boy Limited’s Land asset was $80 000 and the carrying amount was $60 000. If the
company tax rate is 30%, which of the following is the appropriate adjustment to recognise the tax effect
of the business combination revaluation of land?

a. DR Deferred tax liability $6 000

*b. CR Deferred tax liability $6 000
c. DR Deferred tax asset $6 000
d. CR Deferred tax asset $6 000

8. On 1 July 2014, Peter Limited acquired all the issued shares of Kerri Limited for $100 000 when the
equity of Kerri Limited consisted of:
Share capital $70 000
Retained earnings 30 000
The pre-acquisition entry at 1 July 2014 is:
 a. Shares in Kerri Limited Dr 100 000
Retained earnings Cr 30 000
Share capital Cr 70 000

*b. Retained earnings Dr 30 000

Share capital Dr 70 000
Shares in Kerri Limited Cr 100 000

c. Retained earnings Dr 70 000

Share capital Dr 30 000
Shares in Kerri Limited Cr 100 000

d. Goodwill Dr 30 000
Share capital Dr 70 000
Shares in Kerri Limited Cr 100 000

9. Susan Limited has two subsidiary entities, Rachel Limited and Rebecca Limited. Susan Limited owns
100% of the shares in both entities. Details of the cash accounts of each company are: Susan Limited
$200 000, Lemon Limited $60 000, Juice Limited $30 000. The balance of the consolidated cash
account of the Susan Limited group is:

*a. $290 000.

b. $200 000.
c. $260 000.
d. $230 000.

10. When Wayne Ltd acquired 100% of the share capital of Carol Ltd, the carrying amount of Carol Ltd’s
machinery was $200 000. The fair value of the machinery on acquisition date was $160 000. The
company tax rate was 30%. What is the amount of the business combination valuation reserve that
will be recognised on consolidation?

a. $40 000
b. $12 000
*c. $28 000
d. $160 000

Week 9

1. If a subsidiary’s reporting date does not coincide with the parent entity’s reporting date, adjustments
must be made for the effects of significant transactions that occur between the two reporting dates
provided the reporting dates differ by no more than:

a. nine months.
*b. three months.
c. one month.
d. six months.

2. Which of the following statements is incorrect?

a. Where consolidated financial statements are prepared over a number of years, consolidation
entries need to be made every time a consolidation worksheet is prepared.
 *b. Consolidation adjusting entries affect the ledger accounts of the parent and subsidiaries.
c. A consolidation worksheet is used to help the process of adding together the financial statements
of the parent and its subsidiaries.
d. There are no consolidated ledger accounts.

3. Unity Limited acquired 100% of the share capital of Bellvista Limited. Bellvista had issued share
capital of $200 000. The book values of Bellvista Limited’s assets were: buildings $100 000,
machinery $120 000. The fair values of these assets were: buildings $180 000, machinery $140 000.
The tax rate is 30%. The fair value of the identifiable net assets is:

*a. $270 000.

b. $220 000.
c. $320 000.
d. $200 000.

$200,000 + 70,000[(180,000-100,000)+ (140,000-120,000) x 70%]= $270,000

4. At the date of acquisition, a subsidiary had recorded a dividend payable of $100 000. Assuming that
the shares were acquired on a cum. div basis, the consolidation adjustment needed at the date of
acquisition to eliminate the dividend is:

*a. DR Dividend payable $100 000

CR Dividend receivable $100 000

b. DR Dividend revenue $100 000

CR Dividend declared $100 000

c. DR Shares in subsidiary $100 000

CR Dividend receivable $100 000

d. DR Dividend receivable $100 000

CR Dividend payable $100 000

5. On 1 July 2014 Good Ltd acquired a 100% interest in Life Ltd. At that time Life Ltd had goodwill of
$10 000 recorded in its statement of financial position as a result of a previous business combination.
The total goodwill arising on Good’s acquisition of Life was $24 000. The goodwill to be recognised
on consolidation as a result of Good’s acquisition of Life is:

a. nil.
b. $10 000.
*c. $14 000.
d. $24 000.

6. The effect of the pre-acquisition entry is to eliminate the ‘Shares in subsidiary’ asset and the:

*a. equity of the subsidiary at the acquisition date.

b. equity of the parent at the acquisition date.
c. net assets of the subsidiary at the acquisition date.
d. net assets of the parent at the acquisition date.

7. Easts Limited acquired 100% of the shares in Tigers Limited on a cum div. basis for $200 000. At
acquisition date, the subsidiary had a declared dividend of $10 000. The pre-acquisition entry must
include the following line:
 a. DR Shares in subsidiary $190 000
b. CR Shares in subsidiary $200 000
*c. CR Shares in subsidiary $190 000
d. CR Shares in subsidiary $10 000

8. Hungry Limited acquired 100% of the share capital of Jane Limited for a purchase consideration of
$320 000. At acquisition date, the net fair value of Jane Ltd’s assets, liabilities and contingent
liabilities was $250 000 including goodwill with a carrying amount of $20 000. The company tax
rate is 30%. The unrecorded amount of goodwill that must be recognised on the consolidation
worksheet is:

a. $50 000.
*b. $70 000.
c. $90 000.
d. $15 000.

$250,000- $20,000= $230,000

$320,000-$230,000= $90,000
$90,000 - $20,000 (recorded goodwill)= $70,000

9. One year after acquisition date, the goodwill acquired was regarded as having become impaired by
$40 000. The appropriate consolidation adjustment in relation to the impairment will include the
following line:

a. DR Goodwill $40 000

b. CR Impairment expense $40 000
c. CR Business combination valuation reserve $40 000
*d. CR Accumulated impairment losses $40 000

10. Titans Ltd acquired 100% of Taylor Ltd on 1 July 2014. At acquisition date, Taylor Ltd had the
following equity items:
- Retained earnings $48 000
- Share capital $66 000
- Business combination revaluation reserve $20 000
In the year following the acquisition, Taylor Ltd paid a bonus share dividend of $28 000 out of pre-
acquisition retained earnings. The following consolidation adjustment is needed in the consolidation
worksheet for 30 June 2015:

*a. DR Share capital $28 000

CR Bonus dividend paid $28 000

b. DR Shares in subsidiary $28 000

CR Share capital $28 000

c. DR Bonus dividend paid $28 000

CR Share capital $28 000

d. DR Retained earnings $28 000

CR Share capital $28 000
Week 10

1. AASB 10 Consolidated Financial Statements requires that intragroup transactions be:

a. eliminated on consolidation to the extent of the parent’s interest in the subsidiary.

b. eliminated in the books of the parent and subsidiary to the extent of the parent’s interest in the
subsidiary.
c. eliminated in full in the books of the parent and subsidiary.
*d. eliminated in full on consolidation.
 Parent and subsidiary deal with each other within the group.
 Dividend (parent and subsidiary): only eliminate the percentage you got or the percentage of
ownership you got.
2. A subsidiary sold a quantity of inventory to its parent entity at a before-tax profit of $12 000. The
original cost of the inventory to the subsidiary was $41 000. At the end of the year all of the inventory
was still on hand. The consolidation adjustment entry to eliminate this transaction will include which of
the following line items?

*a. Cr Inventory $12 000

b. Cr Inventory $53 000
c. Cr Inventory $41 000
d. Cr Inventory $29 000

3. In May 2014, a parent sold inventory to a subsidiary entity for $60 000. The inventory had previously
cost the parent entity $48 000. The entire inventory is still held by the subsidiary at reporting date, 30
June 2014. Ignoring tax effects, which of the following is the adjustment entry in the consolidation
worksheet at reporting date?

a. Cash Dr 48 000
Sales revenue Cr 48 000
Cost of sales Dr 48 000
Inventory Cr 48 000

b. Sales revenue Dr 48 000

Cash Cr 48 000
Inventory Dr 48 000
Cost of sales Cr 48 000

C. Cost of sales Dr 60 000

Sales revenue Cr 12 000
Inventory Cr 48 000

*d. Sales revenue Dr 60 000

Cost of sales Cr 48 000
Inventory Cr 12 000

4. Thurston Limited sold inventory to its parent entity, Cowboys Ltd, at a before-tax profit of $8000. The
inventory originally cost Thurston Limited $32 000. At balance sheet date, Cowboys Limited had sold
90% of the inventory to an external party. The consolidation adjustment entry (excluding tax effects)
will eliminate unrealised profit amounting to:

*a. $800.
b. $7200.
c. $3200.
d. $24 000.
  Profit and closing inventory
 Eliminate the 10%
5. During the year ended 30 June 2014, a subsidiary sold inventory to a parent for $90 000. The
inventory had previously cost the subsidiary entity $72 000. By 30 June 2014 the parent had sold 75%
of the inventory to a party outside the group. The remaining inventory was sold externally in July
2014. The company tax rate is 30%. Which of the following is the adjustment entry in the
consolidation worksheet at 30 June 2015? (Profit and opening inventory)
a. Sales revenue Dr 90 000
Cost of sales Cr 85 500
Inventory Cr 4 500
Deferred tax asset Dr 1 350
Income tax expense Cr 1 350

b. Retained earnings Dr 4 200

Income tax expense Dr 1 800
Cost of sales Cr 6 000

*c. Retained earnings Dr 3 150

Income tax expense Dr 1 350
Cost of sales Cr 4 500

d. Retained earnings Dr 4 500

Inventory Cr 4 500
Deferred tax asset Dr 1 350
Retained earnings Cr 1 350

6. Unrealised profit in the opening inventory of a financial period is adjusted in the consolidation
worksheet by a:

*a. debit to retained earnings.

b. credit to retained earnings.
c. credit to inventory.
d. debit to inventory.

7. A subsidiary sold inventory to its parent in year 1 at a before-tax profit of $15 000. At balance sheet
date, the parent had not sold the inventory to an external party. The company tax rate is 30%. The year
1 consolidation worksheet will contain which of the following adjustment entries for inventory?

a. Dr Inventory $15 000

b. Dr Inventory $10 500
*c. Cr Inventory $15 000
d. Cr Inventory $10 500
 Profit and closing inventory
 Debit sales, credit cost of sales, credit inventory

8. When an entity sells a non-current asset at a profit to another entity within the same group, which of the
following adjustments is necessary on consolidation?

a. Dr Asset
Cr Cash

b. Dr Cash
Cr Asset
 *c. Dr Gain on sale
Cr Asset

d. Dr Asset
Cr Gain on sale

9. Adam Ltd sold an item of plant to its subsidiary Eve Ltd on 1 January 2017 for $50 000. The asset had
cost Adam Ltd $60 000 when acquired on 1 January 2015. At that time, the remaining useful life of
the plant was assessed at 5 years. The adjustment necessary on consolidation to reflect the tax effect of
the depreciation adjustment for the year ended 30 June 2017 will result in a decrease in:

*a. deferred tax assets.

b. deferred tax liabilities.
c. income tax expense.
d. current tax liability.

10. A parent entity sold a depreciable non-current asset to a subsidiary entity for $5600. The asset originally
cost $6000 and at the date of sale accumulated depreciation was $1000. The amount of the unrealised
gain on sale to be eliminated is:

a. $5600.
b. $1000.
*c. $600.
d. $400.
6000-1000= $5000, $5600 - $5000= $600.

Week 11

1. Ownership interests in a subsidiary entity that do not belong to the parent entity are known as:

a. unowned interests.
b. non-controlling interests. (Parent being the controlling interest)
c. external equity interests.
d. non-parent interests.

2. According to AASB 10 Consolidated Financial Statements, a non-controlling interest is classified as:

a. part of the parent entity’s equity.

b. part of the group’s equity.
c. a liability of the parent entity.
d. an asset of the group.

3. A non-controlling interest is entitled to a share of which of the following items?

I Equity of the group entity at acquisition date

II Current period profit or loss of the subsidiary entity
III Changes in equity of the subsidiary between acquisition date and the beginning of the financial
period
IV Equity of the subsidiary at acquisition date

a. I, II and III only

b. I and II only
c. II, III and IV only
 d. III only

4. Which of the following statements is incorrect?

a. The calculation of the NCI is not affected by profits or losses relating to intra-group
transactions. (Must eliminate before we allocate the shares)
b. The NCI is entitled to a share of the group’s consolidated equity. (Consolidated equity includes
parents and equity of subsidiary)
c. The NCI is a contributor of equity to the consolidated group.
d. The NCI is entitled to a share of the subsidiary’s equity adjusted for the effects of profits or
losses made on intra-group transactions.

5. Wendy Limited paid $120 000 for 75% of Yum Limited. At the date of acquisition Yum Limited had equity as
follows:
 share capital of $100 000
 retained earnings of $50 000
 other reserves of $30 000.
All of Yum Limited’s assets and liabilities were recorded at fair value. The fair value of identifiable
net assets acquired by Wendy Limited amounted to:

a. $90 000.
b. 120 000.
c. $135 000.
d. $180 000.
$100,000 +50,000 +30,000 = $180,000 x 0.75= $135,000

6. King Limited paid $220 000 for 70% of Prince Limited. At the date of acquisition Prince Limited had share
capital of $200 000 and retained earnings of $100 000 and all of Prince Limited’s assets and liabilities were r
ecorded at fair value. The fair value of identifiable net assets acquired by King Limited amounted to:

a. $154 000.
b. $210 000.
c. $300 000.
d. $220 000.
$200,000 + 100,000= $300,000 x 0.7= $210,000

7. Jack Limited acquired 80% of the share capital and reserves of Jill Limited for $300 000. Share capital
was $200 000 and reserves amounted to $100 000. All assets and liabilities were recorded at fair value
except buildings which was recorded at $20 000 below fair value. The fair value of the NCI at the date
of Jack’s acquisition was $70 000 and the full goodwill method is adopted by the group. If the
company tax rate was 30%, the total goodwill in relation to this business combination amounts to:

a. $44 800.
b. $48 800.
c. $11 200.
d. $56 000.
Net identifiable assets & liabilities= $200,000 + 100,000 + Building 14,000 (20,000 x 0.7)= $314,000
Consideration transferred= $300,000+ NCI= $70,000= $370,000
=> $314,000- 370,000= $56,000

8. The non-controlling interest columns on a consolidation worksheet are used to:

a. adjust the amounts that have been recorded for intragroup revenue transactions.
b. adjust the amounts that have been recorded for intragroup services.
 c. eliminate the recorded amounts of the non-controlling investment in the subsidiary.
d. compile the amounts of non-controlling interest and parent share of particular line items.

9. Where the NCI is measured at fair value at acquisition date, which of the following methods is being
used?

a. Partial goodwill method

b. Fair value method
c. Full goodwill method
d. NCI goodwill method

10. Which of the following statements is incorrect?

a. Under the partial goodwill method, the NCI is measured at fair value at acquisition date.
(measured as a proportion of the net fair value of the subsidiary’s identifiable assets and
liabilities)
b. Under the partial goodwill method, the NCI is measured as a proportion of the net fair value of
the subsidiary’s identifiable assets and liabilities at acquisition date.
c. Extra columns are added to the consolidation worksheet to divide the group’s equity into the
NCI share and the parent’s share.
d. The adjustments for intragroup transactions are the same whether the subsidiary is wholly owned
or whether there is an NCI in the subsidiary.

Week 12

1. For the purposes of equity accounting, it is presumed that the investor has significant influence over the
other entity where the investor holds:

a. 100% of the voting power of the investee.

b. between 5% and 10% of the voting power of the investee.
c. 20% or more of the voting power of the investee.
d. 75% or more of the voting power of the investee.

2. Which of the following is not one of the three levels of control that one entity can exercise over
another?

a. Controlling influence
b. Significant influence
c. Control
d. Joint control

3. Which of the following statements is incorrect?

a. Significant influence requires the investor to have the power or capacity to participate in the
investee’s financial and operating policy decision.
b. The key criterion for identifying a joint arrangement is that the joint venturers have joint control
over the joint venture.
c. Significant influence requires the investor to actually exercise its power over the investee.
d. The assessment of the existence of significant influence requires judgement on the part of the
accountants.

4. The accounting method applied to investments in associates, known as the equity method, is also
known as the:

a. entity method of consolidation.

 b. significant influence method.
c. multi-line consolidation method.
d. one-line consolidation method.

5. Where the investor is not a parent, the investor applies:

a. the cost method to its associates in its own accounting records.

b. the equity method to its associates and subsidiaries in the consolidated financial statements.
c. the fair value method to its associates in its own accounting records.
d. the equity method to its associates in its own accounting records.

6. Warriors Limited acquired a 20% share in Tomkins Limited for $36 000. Warriors Limited has no
other investments. At the date on which it became an associate, Tomkins Limited had the following
equity:
- share capital $100 000
- retained earnings $80 000.
At the end of the financial year following the investment, Tomkins Limited generated a profit after tax
of $12 000. After applying the equity method of accounting, Warriors Limited will have which of the
following carrying amounts for the investment?

a. $38 400
b. $36 000
c. $33 600
d. $18 400

7. Broncos Limited acquired a 30% interest in Bennett Limited for $54 000. Broncos holds other equity
investments but does not prepare consolidated financial statements. Bennett Limited revalued its
buildings upwards by $20 000 during the current financial period. The balance of the investment in
associate account at the end of the current financial period is:

a. $22 200.
b. $36 200.
c. $54 000.
d. $60 000.

8. The equity method of accounting for an investment in an associate includes which of the following
steps?

I II III IV
Recognise the initial investment at cost Yes Yes No No
Recognise the initial investment at fair value Yes No Yes No
Reduce the carrying amount by any dividends No Yes No Yes
Adjust the carrying amount by the investor’s
share of the associate’s profit or loss No Yes Yes No

a. I
b. II
c. III
d. IV
 9. Cozza Limited acquired a 40% investment in Hodgo Limited for $1 000 000. Hodgo declared and
paid a dividend of $20 000 during the current year. Cozza Limited does not prepare consolidated
financial statements. Which of the following is the appropriate entry for Cozza to record this
dividend?

a. DR Cash $8000
CR Investment in associate $8000
b. DR Dividends payable $8000
CR Cash $8000
c. DR Cash $8000
CR Dividend revenue $8000
d. DR Investment in associate $8000
CR Dividend revenue $8000

15. Adjustments made for the purpose of calculating the incremental adjustment to the share of profit of
an associate are:

a. recognised in the books of the investor.

b. recognised in the books of the investee.
c. notional adjustments and not included in the books of the investee.
d. relate to realised transactions and so are recognised directly by the investee.

Week 13
1. When an administrator is appointed to a company they must give an opinion as to the best of three options
available to creditors. Which of the following is not one of the options available?

a. To end the voluntary administration and return the company to the director’s control.
*b. To end the voluntary administration and appoint a receiver.
c. To approve a deed of company arrangement through which the company will pay all or part
of its debts and then be free of those debts.
d. To wind up the company and appoint a liquidator

2. When a company is unable to pay its debts when they fall due and payable, this is referred to as:

a. liquidation.
b. receivership.
c. administration.
*d. insolvency.

3.. Who is required to prepare the report as to affairs (Form 507)?

a. Members of the company

*b. Directors of the company (given to the liquidator, director prepare)
c. Creditors of the company
d. The liquidator

4. Which of the following is a ground under s. 461 of the Corporations Act on which the court can order
a winding up?

I. The company has no members.

II. The company has not commenced business within one year of incorporation.
III. The court is of the opinion that it is just and equitable that the company be wound up.
 IV. The company has resolved that it be wound up by the court.

a. I and IV
b. I, II and III
c. II, III and IV
*d. I, II, III and IV

5. A declaration of solvency is required to be signed by the directors of the company in order for:

a. the company to issue more shares to its shareholders.

*b. the liquidation to proceed as a members’ voluntary winding up.
c. the court to make an order for liquidation.
d. the company to borrow more money from a bank.

6. In relation to the order of priority of payment of debts upon liquidation, which statement is correct?

a. Ordinary unsecured creditors are paid before preferential unsecured creditors.

*b. Preferential unsecured creditors are paid before deferred creditors.
c. Deferred creditors are paid before ordinary unsecured creditors.
d. Deferred creditors are paid before secured creditors.

7. Claims against a company whereby the creditor has a charge against specific property is known as
a:

*a. non-circulating security interest. (it’s fixed)

b. floating charge.
c. circulating security interest.
d. specific debt covenant.

8. Which of the following is the journal entry recorded on realisation of the assets by the liquidator?

*a. DR Cash, CR Liquidation

b. DR Liquidation, CR Cash
c. DR Cash, CR Revenue from sale of assets
d. DR Shareholders’ distribution, CR Cash

9. The journal entry to record the distribution of cash to shareholders includes which of the following?

*a. DR Shareholders’ distribution (CR Cash)

b. DR Cash
c. CR Liquidation
d. CR Shareholders’ distribution

10. The details below were extracted from the accounting records of Great South East Ltd (a company in
the process of liquidation).
$
40 000 $1 preference shares fully paid 40 000
120 000 $1 ordinary shares paid to 50 cents 60 000
100 000

Cash available (after payment of all creditors) 10 000

Assume that the constitution of Great South East Ltd states that in the event of liquidation, all shares are to
rank equally, based on the number of shares held, in distributing any surplus or deficiency.

For ordinary shareholders, what is the amount of the actual refund or call?

a. A refund of $10 000

b. A refund of $7500
*c. A call of $7500
d. A call of $60 000