Business Combination
2. What is the term for the business combination where all combining entities transfer their net assets to a newly formed entity? A. True merger B. Legal merger C. Roll up transaction D. Spin off
C.
1. A business combination may be structured in all of the following, except A. One or more businesses becomes subsidiaries of an acquirer B. One entity transfers net assets to another entity C. A group of former owners of one of the combining entities obtains control of the combined entity D. An entity acquires assets that are not a business
D.
3. Which method must be applied to all business combination? A. Pooling of interests B. Equity method C. Proportional consolidation D. Acquisition method
D.
20. Which statement is true in relation to business combination achieved in stages? a. The pre-existing equity interest shall be remeasured at fair value with any resulting gain or loss included in profit or loss. b. The pre-existing equity interest shall be remeasured fair value with any resulting gain or loss included in other comprehensive income c. The pre-existing interest shall not be remeasured d. The pre-existing interest shall be remeasured at fair value with any resulting gain or loss recognized in retained earnings.
a.
26. IFRS 3 defines it as a transaction or other event in which an acquirer obtains control of one or more businesses. a. Business combination b. Consolidation c. Merger d. Acquisition of net assets
a.
30. Which of the following statements concerning the identification of the acquirer in a business combination is incorrect? a. In business combination through merger, the acquirer is the absorbed corporation after the business combination b. In business combination through consolidation, the acquirer is the newly formed corporation. c. In business combination effected primarily by transferring assets or by incurring liabilities or issuing shares, the acquirer is usually the entity that transfers the cash, incurs the liabilities or issues the shares. d. In some business combination, commonly called "reverse acquisition" the issuing entity is the acquiree while the other entity that receives the issued shares is the acquirer
a.
32. As of the acquisition date, the acquirer shall recognise, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. As a general rule, the acquirer shall measure the identifiable assets acquired and the liabilities assumed at their a. Acquisition date-fair values b. Acquisition date-book value c. Acquisition date-face value d. Acquisition date-carrying value
a.
34. Under IFRS 3, contrary to IAS 37, what is the recognition principle of contingent liability assumed in a business combination? a. The acquirer shall recognise as of the acquisition date a contingent liability assumed in a business combination if it is a present obligation that arises from past events and its fair value can be measured reliably even only reasonably possible b. The acquirer shall recognize a contingent liability assumed in a business combination at the acquisition date only if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation c. The acquirer shall recognise a contingent liability assumed in a business combination at the acquisition date only it if is virtually certain that an outflow of resources embodying economic benefits will be required to settle the obligation. d. The acquirer shall recognize a contingent liability assumed in a business combination at the acquisition date only if its remote that an outflow of resources embodying economic benefits will be required to settle the obligation.
a.
35. What is the measurement of the consideration transferred or given up in a business combination? a. Acquisition date-fair values b. Acquisition date-book value c. Acquisition date-face value d. Acquisition date-carrying value
a.
37. If at the date of acquisition, the aggregate of (1) the fair value of consideration transferred, (2) the amount of NCI measured at either (a) fair value or (b) proportionate share of fair value of net assets of acquiree, and (3) in a business combination achieved in stages, the acquisition date fair value of the previously held equity interest, exceeds the fair value of net assets of the acquiree, the difference shall be treated by the acquirer as a. Goodwill from business combination classified as non-current asset in the Consolidated Statement of Financial Position which will not be amortized but will be subject to annual impairment test b. Gain on bargain purchase to be recognized at acquisition date Consolidated Statement of Comprehensive Income as part of profit or loss but attributable to parent's shareholders only c. Negative goodwill to be subject to amortization for a presumed life of 10 years d. Impairment loss to be recorded at acquisition date Consolidate Income Statement
a.
39. Under IFRS 3, what is the treatment of acquisition related costs in a business combination under IFRS 3? a. It shall be expensed as incurred and presented as part of profit or loss b. It shall be capitalized as part of consideration given up in computation of goodwill or gain on bargain purchase. c. It shall be debited to share premium d. It shall be charged directly to retained earnings
a.
40. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. What is the maximum term or period of the measurement period? a. One year or 12 months from the acquisition date b. 6 months from the acquisition date c. 3 months from the acquisition date d. 1 month from the acquisition date
a.
42. How shall an acquirer in a business combination account for the changes in fair value contingent consideration classified as financial liability if the changes result from events after the acquisition date? a. The changes in fair value of contingent consideration classified as financial liability shall be recognized as gain or loss in profit or loss because they are not measurement period adjustments. b. The changes in fair value of contingent consideration classified as financial liability shall be retroactively adjusted to goodwill/gain on bargain purchase because they are measurement period adjustments. c. The changes in fair value of contingent consideration classified as financial liability shall be retrospectively restated to beginning retained earnings because they are prior period error. d. The changes in fair value of contingent consideration classified as financial liability shall be retroactively applied to beginning retained earnings because they are change in accounting policy.
a.
6. What is t he initial measurement of the identifiable assets and liabilities assumed in a business combination? a. Acquisition date fair value b. Acquisition date carrying amount c. Acquisition date present value of cash flows d. Acquisition date historical cost
a.
7. Which is not one of the steps in accounting for an acquisition? a. Prepare proforma financial statements prior to acquisition b. Determine the acquisition date c. Identify the acquirer d. Expense the costs and general expenses of the acquisition in the period of acquisition
a.
24. When does the measurement period end for a business combination in which there was incomplete accounting information on the date of acquisition? a. When the acquirer receives the information or one year from the acquisition date, whichever occurs earlier. b. On the final date when all contingencies are resolved. c. Thirty days from the date of acquisition d. At the end of the reporting period in the year of acquisition
a..
10. What date should be used as the acquisition date for a business combination? a. The date when the acquirer signs the contract to purchase the business b. The date when the acquirer obtains control of the acquire c. The date when all contingencies related to the transaction are resolved. d. The date when the acquirer purchased more than 20% of the shares of the acquire
b.
12. When should an acquirer derecognize a contingent liability recognized as the result of an acquisition? a. When it becomes more likely than not that the entity will not be liable b. When the contingency is resolved c. At the end of the year of acquisition d. When it is reasonably possible that the liability will not require payment
b.
15. What is meant by "full goodwill" method? a. The recognition of goodwill which relates to the parent company interest b. The recognition of goodwill which relates to the noncontrolling interest and the controlling interest c. The recognition of goodwill which relates to the noncontrolling interest d. A bargain purchase
b.
19. When an acquirer had 30% equity interest in an acquire and subsequently purchased another 25% equity interest in order to gain control, the transaction is known as a. Business combination of entities under common control b. Business combination of achieved in stages c. Business combination by instalment d. Step by step acquisition
b.
29. In different types of business combination, which of the following is not considered as an acquirer? a. The newly formed corporation in case of merger. b. The absorbed corporation in case of consolidation c. The corporation that acquired more than 50% of the other corporation's ordinary shares. d. The corporation that controls the acquire.
b.
31. It refers to the date on which the acquirer obtains control of the acquiree a. Business combination date b. Acquisition date c. Control date d. Consolidation date
b.
36. If the aggregate of the (a) consideration transferred measured in accordance with this IFRS, which generally requires acquisition-date fair value; (b) the amount of any non-controlling interest in the acquiree measured in accordance with IFRS 3; and (c) in a business combination achieved in stages, the acquisition-date fair value of the acquirer's previously held equity interest in the acquiree is less than the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with IFRS 3 (FVNAA), the difference shall be classified as a. Goodwill to be presented as noncurrent asset b. Gain on bargain purchase to be presented as part of profit or loss c. Gain on acquisition to be presented as part of OCI d. Share premium from issuance of shares
b.
43. How shall an acquirer in a business combination account for the changes in fair value contingent consideration classified as equity instrument if the changes result from events after the acquisition date? a. The changes in fair value of contingent consideration classified as equity shall be recognized as gain or loss in profit or loss because they are not measurement period adjustments b. Contingent consideration classified as equity shall not be remeasured and its subsequent settlement shall be accounted for within equity because they are not measured period adjustments. c. The changes in fair value of contingent consideration classified as equity shall be retrospectively restated to beginning retained earnings because they are prior period error. d. The changes in fair value of contingent consideration classified as equity shall be retroactively adjusted to goodwill/gain on bargain purchase because they are measurement period adjustments.
b.
9. Which is not considered in identifying the acquirer in a business combination? a. The terms of the exchange of equity securities b. The relative amount of intangible assets on the individual entity financial statements c. The relative voting rights in the combined entity after the combination d. The composition of the governing body of the combined entity.
b.
25. What is the proper treatment of measurement period adjustment? a. Adjusted to profit or loss b. Adjusted to other comprehensive income c. Retroactively adjusted to goodwill or gain on bargain purchase d. Retroactively adjusted to retained earnings.
c.
27. Under IFRS 3, how shall an entity (acquirer) account for each business combination? a. Pooling of interest method b. Proportionate consolidated method c. Acquisition method d. Equity method
c.
33. For each business combination, the acquirer shall measure at the acquisition date components of noncontrolling interests (NCI) in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation at either a. Fair value b. The present ownership instruments' proportionate share in the recognized amounts of the acquiree's identifiable net assets c. Either A or B d. Neither A or B
c.
38. How shall the acquirer account for its previously held equity interest in the acquiree upon obtaining control of the acquiree or how shall an acquirer account for a business combination achieved in stages a.k.a. step acquisition? a. The acquirer shall treat the transaction as change in accounting policy to be treated retrospectively at acquisition date. b. The acquirer shall account the transaction as prior period error to be treated by retroactive restatement. c. The acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognized the resulting gain or loss in Profit/Loss d. The acquirer shall not include the previously held equity interest in the computation of goodwill or gain on bargain purchase arising from business combination
c.
4. The acquisition method of accounting for a business combination requires all, except a. Identifying the acquirer b. Determining the acquisition date c. Recognizing and measuring the identifiable assets acquired, the liabilities assumed and the noncontrolling interest in the acquire at carrying amount d. Recognizing goodwill or gain from bargain purchase.
c.
5. Which situation would require the use of the acquisition method in a business combination? a. The acquisition of group of assets b. The formation of a joint venture c. The purchase of more than 50% of a business d. All of these would require the use of the acquisition method
c.
11. An acquirer might obtain control of an acquire in all of the following, except a. By transferring cash, cash equivalents and other assets b. By issuing equity interest c. By contract alone, even without consideration d. By acquiring interest in a joint venture
d.
13. In a business combination, goodwill is measured as a. The consideration transferred minus the identifiable net assets acquired. b. The total of the consideration transferred plus the amount of any noncontrolling interest in the acquiree minus the identifiable net assets acquired. c. The total of the consideration received plus the fair value d. The total of the consideration transferred, plus the amount of any noncontrolling interest in the acquiree plus the fair value of previously held interest in the acquiree minus the identifiable net assets acquired.
d.
14. Which reason would not contribute to the creation of negative goodwill? a. Errors in measuring the fair value of the acquiree's net identifiable assets or the cost of the business combination b. A bargain purchase c. A requirement in an IFRS to measure net asset acquired at a value other than the fair value. d. Making acquisitions at the top of a "bull" market for shares.
d.
16. An acquirer should at the acquisition date recognize goodwill acquired in a business combination as an asset. Goodwill should be accounted for as which of the following? a. Recognize as an intangible asset and amortize over its useful life b. Write off against retained earnings c. Recognize as an intangible asset and test for impairment when trigger event occurs d. Recognize as an intangible asset and test for impairment annually or more frequently if impairment is indicated.
d.
17. IFRS 3 requires that the contingent liabilities of the acquired entity should be recognized at fair value. The existence of contingent liabilities is often reflected in a lower purchase price. Recognition of such contingent liabilities will a. Decrease the value of goodwill thus decreasing the risk of impairment of goodwill. b. Decrease the value of goodwill thus increasing the risk of impairment of goodwill c. Increase the value of goodwill thus decreasing the risk of impairment of goodwill d. Increase the value of goodwill thus increasing the risk of impairment of goodwill
d.
18. Acquisition costs incurred and related to a business combination should be a. Allocated on prorate basis to the nonmonetary assets acquired b. Capitalized as part of goodwill and tested annually for impairment c. Capitalized as other asset and amortized over five years. d. Expensed as incurred in the current period.
d.
21. In a business combination accounted for as an acquisition, the fair value of the net identifiable assets acquired exceeded the acquisition cost. How should the excess fair value be reported? a. Negative goodwill b. Share premium c. Reduction of the values assigned to certain assets and gain for any unallocated portion d. Gain from bargain purchase recognized in profit or loss
d.
22. How should an entity account for the incomplete information in preparing the financial statements immediately after the acquisition? a. Do not record the uncertain items until complete information is available b. Record to a contra account to the investment account for the amounts involved c. Record the uncertain items at the carrying amount of the acquire d. Record the uncertain items at a provisional amount measured at the date of acquisition
d.
23. What is the period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination? a. Retroactive period b. Prospective period c. Retrospective period d. Measurement period
d.
41. Some changes in the fair value of contingent consideration that the acquirer recognises after the acquisition date may be the result of additional information that the acquirer obtained after that date about facts and circumstances that existed at the acquisition date. These are called measurement period adjustments that can be adjusted during the measurememt period. Which of the following transactions is considered as a measurement period adjustment that the acquirer shall retrospectively adjust to goodwill/(gain on bargain purchase) during the measurement period which shall not exceed one year from the acquisition date? a. Changes in the value contingent consideration occurring within one year from the acquisition date as a result of events occurring after the acquisition date such as meeting an earnings target, a specified share price or reaching milestone on a research and development project b. Increase in the fair value of the financial liability at fair value through profit or loss issued as consideration for business combination due to movement of prices in the exchange market. c. Change in the carrying amount of the financial liability at amortized cost issued as consideration for business combination due to amortization of the premium/(discount) on financial liability d. Changes in the provisional amount of contingent liability or contingent consideration as a result of new information obtained about the facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date.
d.
44. Which of the following accounting treatments for costs related to business combination is incorrect? a. Acquisition related costs such as finder's fees; advisory, legal, accounting, valuation and other professional and consulting fees; and general administrative costs, including the costs of maintain an internal acquisitions department shall be recognized as expense in the Profit/Loss in the periods in which the costs are incurred. b. The costs related to issuance of stocks or equity securities shall be deducted/debited from any share premium from the issue and any excess is charged to :share issuance cost: reported as contract-equity account against either (1) share premium from other share issuances or (2) retained earnings. c. The costs related to issuance of financial liability at fair value through profit or loss shall recognized as expense while those related ot issuance of financial liability at amortized cost shall be recognized as deduction from the boo the book value of financial liability or treated as discount on financial liability to be amortized using effective interest method. d. The costs related to the organization of the newly formed corporation also known as pre-incorporation costs shall be capitalized as goodwill or deduction from gain on bargain purchase
d.
8. Which statement is incorrect concerning an acquirer? a. In a business combination effected by transferring cash or other assets, the acquirer is usually the entity that transfers the cash or other assets. b. In a business combination effected by issuing equity interest, the acquirer is usually the entity that issues the equity interest. c. The acquirer is usually the combining entity whose relative size is significantly greater than that of the combining entity or entities. d. If a new entity is formed to issue equity interests to effect a business combination, the new entity formed is necessarily the acquirer.
d.
28. Applying acquisition method for business combination requires the following steps, except a. Identifying the acquirer b. Determining the acquisition date c. Recognizing and measuring the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquire d. Recognizing and measuring goodwill or a gain from a bargain purchase e. Using equity method
e.