1. Which one of the following could be objectives of preparing consolidated financial statements?

A. To provide information about resources under the control of the group.

B. To provide Information about claims against the group’s resources
C. Assists users to better assess the prospects for future net cash inflows to the group which is
useful in making decisions.
D. All of the above
2. All of the following are criteria to consider any segment as operating segment except
A. Generating internal or external revenue
B. The performance is regularly reviewed by chief operating decision maker.
C. Discrete financial information is available
D. Should satisfies the 10% and 75% criteria
3. Savana Company acquired the following net assets of Jano Company: Property Br25 000, Inventory
Br18 000, Accounts receivable Br14 000; Accounts payable Br3 000. All items are stated at fair
value. The consideration given was Br 60 000. The amount of goodwill acquired was:

A. Nil C. 54,000Br
B. 6,000Br D. 60,000Br
4. What value of the assets and liabilities of parent company is reflected in the consolidated financial
statements on the acquisition date?
A. Replacement cost C. Book value
B. Fair value D. Average value
5. Which of the following is a reason why a company would expand through a combination, rather
than by establishing new facilities?
A. A combination might provide cost advantages.
B. A combination might provide fewer operating delays.
C. A combination might provide easier access to intangible assets.
D. All of the above
6. For the purposes of consolidated financial reporting, a group is:
A. An entity that has no subsidiaries
B. A parent entity and all its subsidiaries
C. An entity that has one or more subsidiaries
D. A subsidiary entity of another entity
7. Which one of the following is incorrect about Non- controlling Interest?
A. Shareholders of the subsidiary other than the parent’s shareholders.
B. Claim of shareholders on the income and net assets of the subsidiary.
C. Voting shares not owned by the parent company.
D. Considered when subsidiary is wholly acquired by parent company.

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 8. Which one of the following financial statement should be consolidated at the date of the acquisition?
A. Statement of financial position C. Statement of changes in equity
B. Statement of comprehensive income D. Statement of cash flows
9. Which of the following accounts is not displayed in the consolidated financial statements?
A. Common stock of a parent company
B. Retained earnings of a parent company
C. Retained earnings of subsidiary
D. Goodwill
10. Star Co acquired 40% of Eagle Joint venture’s capital interest and it has got a joint venture right on
1 January 2019. The investment cost was birr 5.5 million. For the year ended 31 December 2019,
Eagle Co. reports a net profit of birr 625,000. What amount of investment in Eagle Joint venture
account will be reported in the statement of Financial Position of Star Co. on December 31, 2019?
A. Birr 5,230,000 C. Birr 6,125,000
B. Birr 5,750,000 D. None of the above
11. Non-controlling interests (NCI) are reflected as a component of
A. The consolidated statement of income and loss
B. The consolidated statement of financial position
C. The consolidated statement of cash flow
D. All of the above

12. Which one of the following might a cause for a parent to loss its control?
A. the parent sells some or all of its interest in the subsidiary
B. the subsidiary issues additional common stock
C. the parent enters into an agreement to relinquish control
D. All of the above
13. In a business combination, costs paid for registering and issuing equity securities are:
A. Deducted from income in the period of combination
B. Reduced from the parent company’s investment account
C. Added to the parent/investor company’s investment account
D. Deducted from share premium (APIC)
14. Forward exchange rates are useful for those who wish to
A. Protect themselves from the risk that the exchange rate will change before a transaction is
completed.
B. Gamble that a currency will rise in value.
C. Gamble that a currency will fall in value.
D. All of the above
15. During 2017, an Ethiopian company purchased inventory from a foreign supplier. The transaction
was denominated in the foreign currency of the seller. The direct exchange rate increased from the

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 date of the transaction to the statement of financial position date. The exchange rate decreased from
statement of financial position date to the settlement date in 2018. For the years 2017 and 2018,
transaction gains or losses should be recognized as:
A. 2017, gain; 2018, gain C. 2017, loss; 2018 loss
B. 2017, gain; 2018, loss D. 2017, loss; 2018, gain
16. The primary currency of the foreign entity's operating environment is known as the
A. translation currency. C. reporting currency.
B. functional currency. D. temporalcurrency.
17. Which one of the following shall be considered while assessing an entity’s control with less than
50% of voting rights?
A. size of the holding relative to the size of others
B. dispersion of other voting holders
C. potential voting rights
D. All of the above
18. A transaction gain is recorded when there is an:
A. importing transaction and the exchange rate increases.
B. exporting transaction and the exchange rate increases.
C. exporting transaction and the exchange rate decreases.
D. none of these
19. On November 1, 2017, American Company sold inventory to a foreign customer. The account will
be settled on March 1 with the receipt of $450,000 foreign currency units (FCU). On November 1,
American also entered into a forward contract to hedge the exposed asset. The forward rate is $0.70
per unit of foreign currency. American has a December 31 fiscal year-end. Spot rates on relevant
dates were:
Date Per Unit of Foreign Currency
November 1 $0.73
December 31 0.71
March 1 0.74
What will be the adjusted balance in the Accounts Receivable account on December 31, and how much gain
or loss was recorded as a result of the adjustment?
A. Receivable Balance, $319,500; Gain/Loss Recorded, $9,000 gain
B. Receivable Balance, $319,500; Gain/Loss Recorded, $9,000 loss
C. Receivable Balance, $333,000; Gain/Loss Recorded, $4,500 gain
D. Receivable Balance, $333,000; Gain/Loss Recorded, $18,000 gain
20. Which of the following types of business combinations typically occurs when management’s
intention to monopolize a particular industry?
A. Vertical Business Combination
B. Mixed Business Combination
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 C. Horizontal Business combination
D. None of the above

21. Monetary items are best described as:

A. plant and equipment
B. units of currency held and assets and liabilities to be received or paid in fixed numbers of
currency units
C. all intangible items including goodwill;
D. all items that are contingent in nature
22. If the Ethiopian Birr devalues against the U.S. dollar:
A. Americans should find Ethiopian goods are now very expensive.
B. Ethiopian residents would find Americans goods are relatively less expensive than Ethiopian
goods.
C. U.S. goods should have an easier time competing against Ethiopian goods in both countries.
D. Ethiopian goods should have an advantage in competing against U.S. goods in both countries.
23. According to the acquisition method of accounting for business combination, costs paid to
accountants for services in arranging a merger should be
A. Capitalized as a part of the overall fair value acquired in the merger
B. Recorded as an expenses in the period the merger takes place
C. Included in recognized goodwill
D. Written off over a five year maximum useful life
24. Which one of the following statement is incorrect?
A. subsidiaries are legally separated from their parents
B. creditors and stockholders of a subsidiary generally have no claim on the parent Co.
C. stockholders of the subsidiary have the right to share on parent’s profit.
D. Creditors and non-controlling common stockholders of subsidiaries are most interested in the
separate financial statements of the subsidiary.

25. An entity, whose functional currency is the dollar, purchases machinery from a foreign supplier for
8 million Euros on 31 October 2008 when the exchange rate was 1.5 Euros = 1 dollar. At the year-
end of 31 December 2008, the amount has not been paid. The closing exchange rate was 1.25 Euros
= 1 dollar. Which of the following statements are correct?
A. Cost of Machinary is $6.4 million, no exchange gain, account payable $6.4milion
B. Cost of Machinary $5.33million, exchange loss $1.07 million, account payable of $6.4.
million
C. Cost of Machinary $5.33 million, no exchange loss, account payable $5.33 million
D. Cost of Machinary $6.4 million, exchange gain $1.07 million, account payable $5.33million
26. A business merger differs from a business consolidation because

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 A. A merger dissolves all but one of the prior entities ,but consolidation dissolves all of the
prior entities
B. A consolidation dissolves all but one of the prior entities ,but merger dissolves all of the
prior entities
C. A merger is created when two entities join , but a consolidation is created when more than
two entities
D. A consolidation is created when two entities join ,but a merger is created when more than
two entities join

27. In a business combination, the direct costs of registering and issuing equity securities are:
A. Added to the parent/investor company’s investment account
B. Charged against Share Premium of the combined entity
C. Deducted from income in the period of combination
D. Reported as loss of the period
28. Sarot Corporation paid $100,000 cash for the net assets of Adot Company, which consisted of the
following:
Book Value Fair Value
Current assets $ 40,000 $ 56,000
Plant and equipment 160,000 220,000
Liabilities assumed (40,000) (36,000)
$160,000 $240,000
Assume Adot Company is dissolved. The plant and equipment acquired in this business combination should
be recorded at:
A. $220,000 B. $200,000 C. $183,332 D. $180,000
29. Which one of the following can be taken as foreign currency transactions?
A. Buys or sells goods or services whose prices are denominated in foreign currency;
B. Borrows or lends funds denominated in foreign currency
C. For other reasons to acquires or disposes of assets denominated in foreign currency
D. All of the above
30. If X is a manufacturing business engaged in production of different sized shoes and Y is a hotel
business what kind of business combination is it if X and Y are combined and formed a new
business

A. horizontal combination C. conglomerate combination

B. vertical combination D. acquisition of net asset

31. Company A acquired 80% of the common stock company B. B company assets have a total net fair
value of $800,000 and a total net book value of $580,000. The fair value of company A shares

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 issued in thee exchange was $700,000. The amount of goodwill and non-controlling interest
respectively on this acquisition would be

A. $ 220,000 & $ 100,000 C. $ 120,000 & $ 320,000

B. $ 60,000 & $ 160,000 D. $ 236,000 & $ 100,000

32. When company A and company B are combined together and both of them are dissolved and the
new company C is formed. Such type of combination is called

A. Statutory consolidation C. Acquisition of common stock

B. Statutory merger D. Acquisition of assets

33. ABC company paid birr 2,500,000 for the net assets of XYZ corporation and XYZ was then
dissolved. XYZ had no liabilities. The fair values of XYZ assets were birr 3,750,000. XYZ only
noncurrent assets were land and building with book values of birr 100,000 and 520,00respectively
and fair values of birr 180,000 and birr 730,000 respectively. At what values will the building be
recorded by ABC?

A. Birr 730,000 C. Birr 210,000

B. Birr 520,000 D. Birr 630,000

34. St. Mary’s university issued 5,000 shares of its birr 1 par common stock valued at birr 100,000 to
acquire shares of unity university in all stock of transaction. St. Mary’s university paid the
investment bankers birr 35,000 and will treat the investment bankers fees as

A. An expense for the current year C. Additional goodwill on the consolidate

B. A prior period adjustment to retained balance sheet
earnings D. A reduction to additional paid in capital

35. Which of the following types of business combination typically occurs when management is
attempting to reduce competition?

A. Horizontal combination C. Conglomerate combination

B. Vertical combination D. All of the foregoing above

36. When the fair values of the separately identified assets acquired and liabilities assumed exceed the
fair value of the consideration transferred, the difference should be:
A. Recognized as an ordinary gain from a bargain purchase.
B. Treated as negative goodwill to be amortized over the period benefited, not to exceed 40 years.
C. Treated as goodwill and tested for impairment on an annual basis.
D. Applied pro rata to reduce, but not below zero, the amounts initially assigned to specific
noncurrent assets of the acquired firm.
37. Which of the following statements is false?
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 A. Income statement items are generally translated at the average rate for the year.
B. Assets and liabilities are normally translated at the current rate on the statement of financial
position date.
C. Equity accounts are usually translated at historical rates.
D. Dividend account is usually translated at the current rate.
38. A 75 percent-owned subsidiary should not be consolidated when:
A. Its operations are dissimilar from those of the parent company
B. Control of the subsidiary does not lie with the parent company
C. There is a dominant non-controlling interest in the subsidiary
D. Management feels that consolidation would not provide the most meaningful financial
statements.
39. Prior to being united in a business combination, Atkins, Inc., and Waterson Corporation had the
following shareholders’ equity figures:
Atkins Waterson
Common shares ($1 par value) . . . . . . . . . . . . $ 180,000 $ 45,000
Share Premium-Ordinary . . . . . . . . . . . . . . . . 90,000 20,000
Retained earnings . . . . . . . . . . . . . . . . . . . . 300,000 110,000
Atkins issues 51,000 new shares of its common shares valued at $3 per share for all of the outstanding
shares of Waterson. Immediately afterward, what are consolidated Share Premium and Retained Earnings,
respectively?
A. $104,000 and $300,000 C. $192,000 and $300,000
B. $110,000 and $410,000 D. $212,000 and $410,000
40. Under IFRS 10, Power arises from the existence of:

A. Relevant activities C. Rights

B. Control D. Significant influence

41. An investor controls of an investee if and only if the investor has all of the following except
A. Power over the investee
B. Rights to variable returns from its involvements with the investee
C. Rights to fixed returns from its involvements with the investee
D. The ability to use its power over the investee that affect the amounts of the investor return
42. Which of the following is an advantage of consolidated financial statements?
A. Efficient controlling
B. Lack of detailed disclosures
C. Non-controlling stock holders get little value from consolidated financial statements
D. The masking of poor performance information asymmetry
43. When translating from the functional currency into the presentation currency assets and liabilities
are translated using
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 A. Closing rate at the acquisition date
B. Closing rate at the date of ending reporting period
C. Average rate since the previous end of reporting period
D. Translation date for each asset and liabilities
44. Prior to translation in to the functional currency assets must be first classified as

A. Current or non-current C. Tangible or intangible

B. Monetary or non-monetary D. Current or biological

45. Which of the following types of business combination typically occurs when management is attempting
is to increase operating efficiency?

A. Horizontal combination
B. Vertical combination
C. Conglomerate combination
D. All of the foregoing above

46. If foreign currency denominated non-monetary items are measured using the fair value method, they
must be translated in to functional currency using the;
A. Exchange rate at the date when the value was determined
B. Exchange rate current at the end of reporting period
C. Closing exchange rate for the financial year
D. Exchange rate the transaction date
47. What is the method of presentation required by IFRS 10 non-controlling interest on consolidated
statement of financial position?
A. As a deduction from goodwill from consolidation
B. As a separate item with in the long-term liabilities
C. As a part of stock holders’ equity
D. As a separate item between liabilities and stock holder’s equity
48. On January 1,2023 ABC corporation acquired 80% of XYZ corporation voting common stock, XYZ
building and equipment had a book value of birr 300,000 and FairValue of birr 350,000 at the time
of acquisition. At what amount will XYZ building and equipment will be reported in consolidated
statements?

A. Birr 350,000 C. Birr 280,000

B. Birr 340,000 D. Birr 300,000

49. Which of the following is NOT an indicator that an Ethiopian parent’s currency should be the
functional currency?
A. Sales contracts denominated in Ethiopian Birr.
B. Raw materials purchased from vendors in Ethiopian Birr.
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 C. Sales contracts denominated in subsidiary’s currency.
D. Goods sold to customers in Ethiopian Birr.
50. Which of the following types of business combinations typically occurs when management’s
intention is to to minimize risk through diversification?

A. Mixed Business Combination C. Vertical Business Combination

B. Horizontal Business combination D. None of the above

51. Which of the following factors would not be used in determining the functional
currency of the entity?
A. The currency in which finance is generated
B. The currency in which sales from operating activities are denominated
C. The currency which is the most internationally used for trading in that industry
D. The currency in which the costs of the entity are mainly denominated
52. The exchange rate quoted for future delivery of foreign currency is the definition of a(n):
A. direct exchange rate. C. spot rate.
B. indirect exchange rate. D. forward exchange rate
53. In Consolidated Financial statements factors that may assist in making the determination of
whether an investor has control over the investee, except:
A. what the relevant activities are and how decisions about those activities are made
B. whether the rights of the investor give it the current ability to direct the relevant activities
C. the purpose and design of the investor
D. whether the investor has the ability to use its power over the investee to affect the amount of
the investor’s returns
54. Which of the following is not a requirement for the acquirer of a business in a business
combination?
A. Determine what information to disclose in financial statements to enable users to evaluate the
nature and financial effects of business combinations
B. Recognize and measure the goodwill or a gain from a bargain purchase in the acquisition
C. Recognize and measure the identifiable assets acquired, the liabilities assumed and any non-
controlling interest
D. Sell off any surplus assets.
55. Which of the following statements is incorrect?
A. Elimination entries appear on a consolidation working paper to eliminate transactions and
balances between companies in the same group.
B. ‘Consideration’ is what is paid or transferred to acquire the subsidiary
C. Consolidated financial statement shows the assets, liabilities, equity, income, expenses and
cash flows of the parent and its subsidiaries are combined and presented as two separate
entities.
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 D. Control of an investee exists when an investor is exposed, or has rights, to variable returns
from that investee and the ability to affect those returns
56. The retained earnings that appear on the consolidated balance sheet of apparent and a 60%
owned subsidiary company are:
A. The parent company’s retained earnings only
B. Combined retained earnings.
C. The parent company’s retained earnings plus100 percent of the subsidiary’s retained earnings.
D. The parent company’s retained earnings plus 60 percent of the subsidiary’s retained earnings.
57. The price of one currency in terms of other currency is called :
A. Foreign exchange Rate
B. Flexible rate of exchange
C. Current rate of exchange
D. None of the above

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