AFAR 1 - Business Combination

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44,
Restructuring provisions may include the costs of an entity’s plan. Single choice.
(1 Point)
To exit an activity of the acquiree,
To involuntarily terminate employees of the acquiree, or
To relocate non-continuing employees of the acquiree.
Retraining or relocating
55,
The excess of the price paid over the fair value of net identifiable assets acquired
should be recognized as:. Single choice.
(1 Point)
Goodwill to be amortized periodically for 20 years
Expenses immediately
Goodwill not subject to amortization but subject to impairment
Goodwill to be amortized for 40 years
66,
According to PFRS 10, which of the following is not an element of control?. Single
choice.
(1 Point)
ability to affect return.
power
major holdings
exposure, or rights, to variable returns
77,
Non-controlling interests shall be presented in the consolidated statement of
financial position. Single choice.
(1 Point)
within equity, separately from the equity of the owners of the parent.
within equity, not distinguished from the equity of the owners of the parent
as a mezzanine item between liabilities and equity
any of these as a matter of accounting policy choice
88,
Kiwi, Inc. acquired Mori Co. on December 31, 2020 in a business combination.
Both Kiwi and Mori were incorporated and began business on January 1, 2019.
Both Kiwi and Mori reported net income for 2019 and 2020. Consolidated
retained earnings for Kiwi, Inc and Subsidiary as of December 31, 2020 will
include the net income of Mori Co., from what date?. Single choice.
(1 Point)
It will not include the net income of Mori Co.
January 1, 2020 to December 31, 2020 only
January 1, 2020
January 1, 2019
99,
A subsidiary shall be excluded from consolidation when. Single choice.
(1 Point)
There is evidence that control is intended to be temporary because the subsidiary is acquired
with the intention to dispose of it within twelve months from the date of acquisition.
The business activities of the subsidiary are dissimilar from those of the other entities within the
group.
The investor is a venture capital organization, mutual fund, unit trust or similar entity.
The subsidiary is operating under severe long-term restrictions that significantly impair its ability
to transfer funds to the parent.
1010,
X owns 50% of Y's voting shares. The board of directors consists of 6 members. X
appoints three of them and Y appoints the other three. The casting vote at
meetings always lies with the directors appointed by X. Does X have control over
Y?. Single choice.
(1 Point)
No, X owns only 50% of the entity's shares and therefore does not have control.
No, control is equally split between X and Y.
Yes, X holds 50% of the voting power and has the casting vote at board meetings in the event
there is no majority decision.
No, control can be exercised only through voting power, not through a casting vote
1111,
A subsidiary, acquired for cash in a business combination, owned inventories with
a market value greater than the book value as of the date of combination. A
consolidated balance sheet prepared immediately after the acquisition would
include this difference as part of. Single choice.
(1 Point)
Deferred credits
Goodwill
Retained earnings
Inventories
1212,
When push-down accounting has been implemented. Single choice.
(1 Point)
Subsidiary records have been adjusted to reflect the market value increases resulting from the
purchase by a parent company.
The minority interest in the subsidiary is shown on its own line in the equity section of the
subsidiary only balance sheet.
Any debt incurred by the parent in acquiring the subsidiary is recorded at its market value by the
subsidiary.
The issuer and the combiner's equity sections are merged
1313,
PFRS 10 define them as the financial statements of a group in which the assets,
liabilities, equity, income, expenses and cash flows of the parent and its
subsidiaries are presented as those of a single economic unit.. Single choice.
(1 Point)
consolidated financial statements
separate financial statements
 group financial statements
combined financial statement
1414,
Which of the following statements concerning the preparation of consolidated
financial statements by a parent is incorrect?. Single choice.
(1 Point)
The parent corporation, as a general rule, shall present consolidated financial statements
including all its subsidiaries regardless of its industry or dissimilarity.
A subsidiary shall be excluded by a parent from the consolidation simply because the investor is
a venture capital organization, mutual fund, unit trust or similar entity.
An investment entity, which (1) obtains funds from one or more investors, (2) commits to its
investors that its business is to invest funds solely for returns/capital appreciation, and (3) measures
and evaluates the performance substantially all of its investment on a fair value basis is exempted
form preparing consolidated financial statements.
A parent corporation (1) which is a wholly-owned subsidiary, (2) whose debt or equity instrument
are not publicly traded, (3) which is not the process of initial public offering, and (4) when its
immediate or ultimate parent produces consolidated financial statements.
1515,
Under PFRS 10, parent corporation is the entity that controls one or more
entities. How does PFRS 10 define control?. Single choice.
(1 Point)
An investor controls an investee when it is exposed or has right to variable return from the
investment with the investee and has the ability to affect those returns through the power over the
investee.
An investor controls an investee when it has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities
An investor controls an investee when it has the ability to influence the financial and operating
policies of an entity so as to obtain benefits from its activities
An investor controls an investee when it owns more than 50% of all the outstanding capital
stocks, whether common or preferred.
1616,
An investee’s only business activity is to purchase receivables and service them
on a day-to-day basis. Servicing involves collection and passing on of principal
and interest payments. Upon default, the investee automatically puts the
receivable to investor X as agreed separately in a put agreement with investor X.
Is investor X required to consolidate investee in its consolidated financial
statements?. Single choice.
(1 Point)
 Yes, because X controls the investee’s relevant activity that is managing the receivables upon
default which significantly affects the investee returns.
No, because there is no statement as regards to majority ownership of stocks.
Yes, but only if X owns 51% or more of voting stocks of investee.
No, because there is no link of power over the investee to the exposure/right to variable returns
of investment
1717,
How shall the parent corporation present the non-controlling interest (NCI) in the
consolidated statement of financial position?. Single choice.
(1 Point)
It shall be presented as non-current liability.
It shall be presented within consolidated stockholders’ Equity, separately from the equity of the
owners of the parent.
It shall be presented as non-current asset.
It shall be presented as contract-equity account like treasure shares and subscription receivable.
1818,
PAS 27 as amended defines separate financial statements as those presented by
a parent or an investor with joint control of, a significant over, in addition to its
consolidated financial statements. Under PAS 27 as amended, investment in
subsidiary shall be accounted for by the parent in its separate financial
statements using.. Single choice.
(1 Point)
Equity method under PSA 28
Cost method
Fair value model under PFRS 9
Any of the above
1919,
When the parent corporation elects to amount its investments in subsidiaries,
associates associate or jointly controlled entities in its separate financial
statements using cost model or fair value model, how shall it recognize its
dividends form a subsidiary , joint associate?. Single choice.
(1 Point)
The dividends form a subsidiary, joint venture or associate shall be recognized as dividend
income as part of profit or loss of separate statement of comprehensive income when its right to
receive dividend is established.
The dividends form a subsidiary, joint venture or associate shall be recognized as deduction from
investment account when its right to receive dividend is established.
 The dividends from a subsidiary, joint venture or associate shall be recognized as dividend
income as part of other comprehensive income of separate statement of comprehensive income
when its right to receive a dividend is established.
The dividends from a subsidiary, joint venture or associate shall be eliminated through
proportionate consolidation in the separate statement of comprehensive income
2020,
In different types of business combination, which of the following is not
considered as an acquirer?. Single choice.
(1 Point)
The remaining or absorbing corporation in case of merger
The absorbed corporation in case of liquidation
The corporation that acquires more than 50% of the other corporation’s ordinary shares
The corporation that controls the acquiree
2121,
Which of the following statements concerning the identification of the acquirer in
a business combination is incorrect?. Single choice.
(1 Point)
In business combination through merger, the acquirer is the absorbed corporation after the
business combination.
In business combination through consolidation, the acquirer is any of the consolidating
corporations.
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 liabilities, or issues the
shares.
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
2222,
20.On January 1, 20x1, MACABRE Co. acquired 90% of the identifiable assets and
assumed all of the liabilities of HORRIBLE, Inc. by paying cash of ₱4,000,000. On
this date, HORRIBLE’s identifiable assets and liabilities have fair values of
₱6,400,000 and ₱3,600,000, respectively. Non-controlling interest has a fair value
of ₱320,000. Five years ago, HORRIBLE appointed Mr. Boss as the CEO under a
ten-year contract. The contract required HORRIBLE to pay the CEO ₱400,000 if
HORRIBLE is acquired before the contract expires. On January 1, 20x1, Mr. Boss
was still employed and MACABRE assumes the obligation of paying Mr. Boss the
contracted amount. How much is the goodwill (gain on bargain purchase)?.
Single choice.
(2 Points)
 1,200,000
1,920,000
1,520,000
1,120,000
2323,
On January 1, 20x1, Donkey Co. acquired 75% of Monkey Co. At that time,
Monkey’s equipment has a carrying amount of ₱400,000 and a fair value of
₱480,000. The equipment has a remaining useful life of 10 years. On December
31, 20x2, Donkey and Monkey reported equipment with carrying amounts of
₱2,000,000 and ₱1,200,000, respectively. How much is the consolidated
“equipment – net” in the December 31, 20x2 financial statements?. Single choice.
(2 Points)
3,200,0000
3,384,000
3,264,000
3,124,000
2424,
On January l , 20x5t CC Co. acquired the identifiable net asset of DD, Inc. On this
date, the identifiable assets acquired and liabilities assumed have fair values of
and P 4,320,000, respectively. CC Co. incurred the following acquisition-related
costs: legal fees, P48,000 due diligence costs, general and administrative costs of
maintaining an internal acquisition, P96,0W. As consideration, CC Co. transferred
9,600 of its own shares with par value and fair value per share of P400 and P500,
respectively, to DDS former owners. Costs of registering the shares (previously
issued.and newly issued) amounted to PI 92,000 (P24,000 pertains to listing fees
of previously issued shares). How much is the goodwill (gain on bargain
purchase) on the business combination?. Single choice.
(2 Points)
P667,200
P720,000
P1,440,000
None of the above
2525,
Dull and Sharp are the stockholders Of Knives Unlimited and Safe ana Cracker
Ore the owners of Quicky Locksmiths. Knives Unlimited purchases all of the assets
of Quicky Locksmiths by paying cash and issuing notes payable. Who are the
stockholders of Knives Unlimited immediately after the above transaction?. Single
choice.
(2 Points)
Dull and Sharp (100%)
Sale and Cracker ( 100%)
Dull and Sharp (50%) and Sale and Cracker (50%)
Dull and Sharp (50%) and Quicky Locksmiths (50%)
2626,
The Mooneye Company acquired a 70% interest in The Swain Company for
P1,420,000 when the fair value of Swain's identifiable assets and liabilities was
P1,200,000. Mooneye acquired a 65% interest in The Hadji Company for P300,000
when the fair value of Hadji's identifiable assets and liabilities was P640,000.
Mooneye measures non-controlling interests at the relevant share of the
identifiable net assets at the acquisition date. Neither Swain nor Hadji had any
contingent liabilities at the acquisition date and the above fair values were the
same as the carrying amounts in their financial statements. Annual impairment
reviews have not resulted in any impairment losses being recognized. Under
IFRS3 Business combinations, what figures in respect of goodwill and of gains on
bargain purchases should be included in Mooneye's consolidated statement of
financial position?. Single choice.
(2 Points)
Goodwill: P580,000; Gain on bargain purchase: P116,000
Goodwill: 0; Gain on bargain purchase: P116,000
Goodwill: 0; Gain on bargain purchase: 0
Goodwill: P580,000; Gain on bargain purchase: 0
2727,
100% of the equity share capital of The Raukatau Company was acquired by The
Sweet Company on June 30, 2010. Sweet issued 5,000 new P100 par ordinary
shares which had a fair value of P800 each at the acquisition date. In addition, the
acquisition resulted in Sweet incurring fees payable to external advisers of
P200,000 and share issue costs of P180,000. In accordance with IFRS3 Business
combinations, goodwill at the acquisition date is measured by subtracting the
identifiable assets acquired and the liabilities assumed from. Single choice.
(2 Points)
P4.00 million
P4.18 million
P4.20 million
 P4.38 million
2828,
TV5 acquired an 80% interest in GMA for P900,000. The carrying amounts and fair
values of DEF’s identifiable assets and liabilities at the acquisition date were as
follows. If TV5 has decided to measure the non-controlling interest at its share of
DEF’s identifiable net assets, what is the amount of gain on bargain purchase?.
Single choice.
(2 Points)

P444,000
P555,000
P666,000
P0
Option 2
2929,
The Coco Milktea Company acquired 80% of The Local Company for a
consideration transferred of P100,000. The consideration was estimated to
include a control premium of P24,000. Local's net assets were P85,000 at the
acquisition date. Which of the following statements is in accordance to IFRS3
Business combinations? I. Goodwill should be measured at P32,000 if the non-
controlling interest is measured at its share of Local's net assets. II. Goodwill
should be measured at P34,000 if the non-controlling interest is measured at fair
value.. Single choice.
(2 Points)
I only
II only
Both I and II
Neither I nor II
3030,
On October 1, 2020 The Potato Corner Company acquired 100% of The Coco
Company when the fair value of Coco’s net assets was P116,000 and their
carrying amount was P120,000. The consideration transferred comprised
P200,000 in cash transferred at the acquisition date, plus another P60,000 in cash
to be transferred 11 months after the acquisition date if a specified profit target
was met by Coco. At the acquisition date there was only a low probability of the
profit target being met, so the fair value of the additional consideration liability
was P10,000. In the event, the profit target was met and the P60,000 cash was
transferred. What amount should Potato Corner present for goodwill in its
statement of consolidated financial position at December 31, 2020, according to
IFRS3 Business combinations?. Single choice.
(2 Points)
P94,000
P80,000
P84,000
P144,000
3131,
On July 1, 2020 The Fundar Company acquired 100% of The Natural Company for
a consideration transferred of P160,000. At the acquisition date the carrying
amount of Natural's net assets was P100,000. At the acquisition date a provisional
fair value of P120,000 was attributed to the net assets. An additional valuation
received on May 31, 2021 increased this provisional fair value to P135,000 and on
July 30, 2021 this fair value was finalized at P140,000. What amount should
Fundar present for goodwill in its statement of financial position at December 31,
2011, according to IFRS3 Business combinations?. Single choice.
(2 Points)
P20,000
P40,000
P25,000
P60,000
3232,
Daeniel owns 75% of Vanessa’s voting shares and loses control of Vanessa by
selling 40% of Vanessa’s shares for P400,000. The fair value of Daeniel’s
remaining investment in Vanessa is P335,000. At the time of the sale, the carrying
amount of the NCI is P220,000, and the carrying amount of Vanessa’s net assets
is P870,000. What would Daeniel’s gain or loss assuming there are no previously
recognized items to reclassify to profit or loss:. Single choice.
(2 Points)
P55,000
P70,000
P80,000
P85,000
 3333,
AJ company issued its common stock for the net assets of PP company in a
business combination treated as acquisition. AJ’s common stock issued was
worth P1,000,000. At the date of combination, AJ’s net assets had a book value of
P1.2 million and a fair value of value of P1.6 million; PP’s net assets had a book
combination, the net assets of the combined company should have been
reported at what amount?. Single choice.
(2 Points)
P3,000,000
P2,200,000
P2,000,000
P1,850,000
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