BUSINESS COMBINATION

1. It is the bringing together of separate entities or businesses into one reporting entity.
a. Business combination
b. Merger
c. Consolidation
d. Intercorporate directorship
2. It is that portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not
owned directly by the parent.
a. Controlling interest
b. Minority interest
c. Subsidiary interest
d. Residual interest
3. Which statement is correct concerning business combinations?
1. All business combinations shall be accounted for by applying the purchase method.
II. The purchase method views a business combination from the perspective of the combining entity that is
identified as the acquirer.
a. I only b. II only c. Both I and II d. Neither I nor II
4. Which statement is incorrect concerning an acquirer?
a. An acquirer shall be identified for all business combinations
b. The acquirer purchases net assets and recognizes the assets acquired and liabilities and contingent liabilities
assumed, including those not previously recognized by the acquiree.
c. Because the purchase method views a business combination from the acquirer's perspective, it is assumed that
one of the parties to the transaction can be identified as the acquiree.
d. The acquiree is the combining entity that obtains significant influence over the other combining entities or
businesses.
5. Although sometimes it may be difficult to identify an acquirer, there are usually indications that one exists
Choose the incorrect statement.
a. If the fair value of one of the combining entities is significantly greater than that of the other combining
entity, the entity with the greater fair value is likely to be the acquirer.
b. If the business combination effected the exchange of voting equity instruments for cash or other assets, the
entity giving up cash or other assets is likely to be acquirer.
c. If the business combination results in the management of one of the combining entities being able to
dominate the selection of the management team of the resulting combined entity, the entity whose management
is able to dominate is likely to be the acquirer
d. When a new entity is formed to issue equity instruments to affect a business combination, the new entity shall
be identified as the acquirer.
6. A business combination is accounted for at cost which includes
I. The fair values at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments
issued by the acquirer in exchange for control of the acquire.
II. Costs directly attributable to the business combination.
a. I only b II only c. Both I and II d. Neither I nor II
7. Costs directly attributable to a business combination include
a. General administrative costs
b. Costs of arranging and issuing financial liabilities
c. Costs of issuing equity instruments
d. Professional fees paid to accountants, legal advisers, valuers and consultants to affect the combination.
8 Which statement is correct concerning the treatment of goodwill arising from a business combination?
a. Goodwill is carried at cost less accumulated amortization and any accumulated impairment losses.
b. Goodwill is carried at cost less any accumulated impairment losses.
c. Goodwill is carried at cost without amortization and impairment.
d. Goodwill is not recognized as an asset.
9. A corporation is specifically organized to acquire the assets and liabilities of two or more previously existing
companies. A new corporation is formed and the original companies are dissolved. This is known as
a. Consolidation
b. Merger
c. Acquisition method
d. None of these
10. A business combination whereby the company taking over the properties of other companies retains its
identity and continuous as larger unit and the other companies are dissolved is known as
a. Consolidation
b. Merger
c. Acquisition method
d. None of these
11. The result of acquiring control of one or more enterprises by another enterprise of the uniting of interest of
two or more enterprises
a. Pooling interest
b. Merger
c. Business combination
d. Consolidation
12. BCD Corporation on acquired UVW Corporation through a business combination accounted for as a
purchase. The appraised or market value of the identifiable assets acquired less liabilities assumed exceeds the
acquisition price paid by BCD for UVW. The excess appraisal or market value should be
a. Reported as a gain or income from acquisition.
b. Allocated to reduce proportionately the values assigned to current assets and deferred credit for any
unallocated portion.
c. Allocated to reduce proportionately the values assigned to noncurrent assets (except long term investment in
marketable equity securities) and a deferred credit for any unallocated portion.
d. Allocated pro-rata to reduce proportionately the values assigned current and noncurrent assets and a deferred
credit for any unallocated portion.
13. Under PFRS 3, which of the following would not contribute to negative goodwill?
A. A bargain purchase.
B. Making acquisitions at the top of a "bull" market for shares.
C. Errors in measuring the fair value of the acquiree's net identifiable assets.
D. A requirement to measure net assets acquired at a value other than fair value.
14. In a business combination, what is the accounting treatment if an acquirer's interest in the fair value of the
net assets acquired exceeds the consideration transferred?
A. Recognize the excess immediately in profit or loss.
B. Recognize the excess immediately in other comprehensive income.
C. Reassess the recognition and measurement of the net assets acquired and the consideration transferred and
then recognize the excess immediately in profit or loss.
D. Reassess the recognition and measurement of the net assets acquired and the consideration transferred and
then recognize the excess immediately in other comprehensive income.
15. During the current year, an entity acquired another entity in a transaction properly accounted for as a
business acquisition. At the time of the acquisition, some of the information for valuing assets was incomplete.
How should the acquirer account for the incomplete information in preparing the financial statements
immediately after the acquisition?
A. Record the uncertain item s at the carrying amount of the acquiree.
B. Do not record the uncertain items until complete information is available.
C. Record a contra account to the investment account for the amount involved.
D. Record the uncertain item at a provisional amount measured at the date of acquisition.
16. When does the measurement period end for a business combination in which there was incomplete
accounting information on the date of acquisition?
A. Thirty days from the date of acquisition.
B. On the final date when all contingencies are resolved.
С. At the end of the reporting period in the year of acquisition.
D. When the acquirer receives the information or one year from the acquisition date, whichever occurs earlier.

1. If the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities
exceeds the cost of the business combination, the acquirer shall
I. Reassess the identification and measurement of the acquiree's identifiable assets, liabilities and contingent
liabilities and the measurement of the cost of the combination.
II. Recognize immediately in profit or loss any excess remaining after the reassessment.
a. I only b. II only c. Both I and II d. Neither I nor II
2. Which statement is incorrect concerning the preparation of consolidated financial statements?
a. The financial statements of the parent and its subsidiaries shall be consolidated on a line-by-line basis by
adding together like items of assets, liabilities, equity, income and expenses.
b. Intragroup balances, transactions, income and expenses shall be eliminated in full.
c. When the reporting dates of the parent and a subsidiary are different, the difference shall be no more than six
months.
d. Consolidated financial statements shall be prepared using uniform accounting policies for like transactions
and other events in similar circumstances.
3. A subsidiary shall be excluded from consolidation when
I. Its business activities are dissimilar from those of the enterprise within the group.
II. Control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its
disposal within 12 months from acquisition.
III. It operates under sever long-term restrictions which significantly impair its ability to transfer funds to the
parent but the parent continues to control the subsidiary.
a. I only b. I and II c. II and III d. I, II and III
4. Minority interests shall be presented in the consolidated balance sheet
a. Separately from liabilities and the parent stockholders' equity
b. Within equity, separately from the parent shareholders' equity
c. As noncurrent liability
d. As component of the parent stockholders' equity
5. If goodwill arising from the consolidation appears among the assets on the consolidated balance sheet of a
parent company and its only subsidiary, this indicates that the subsidiary
a. Was acquired at a price that was less than the underlying book value of its tangible assets
b. Was accounted for as a pooling of interests
c. Already had goodwill on its books
d. Was acquired at a price in excess of the underlying fair value of its net assets.
6. Which of the following is the appropriate basis for valuing fixed assets acquired in a business combination
accounted for as a purchase carried out by exchanging cash or common stock?
a. Historical cost
b. Book value
c. Cost plus any excess of purchase over book value of asset acquired
d. Fair value
7. When an investor uses the cost method to account for investments in common stock, cash dividends received
by the investor from the investee should normally be recorded as:
a. Dividend income
b. An addition to the investor's share of the investee's profit
c. A deduction from the investor's share of the investee's profit
d. A deduction from the investment account
8. On October 1, X Company acquired for cash all the outstanding common stock of Y Company. Both
companies have a December 31 year-end and have been in business for many years. Consolidated net income
for the year ended December 31 should include net income of
a. X Company for 3 months and Y Company for 3 months
b. X Company for 12 months and Y Company for 3 months
c. X Company for 12 months and Y Company for 12 months
d. X Company for 12 months but no income from Y Company distributes a dividend
9. Which of the following is correct?
a. The noncontrolling stockholders' claim on the subsidiary's net asset is based on the book value of the
subsidiary's net assets.
b. Only the parent's portion of the differences between book value and fair value of the subsidiary's assets is
assigned to those assets.
c. Goodwill represents the difference between the book value of the subsidiary's net assets and the amount paid
by the parent to buy ownership.
d. Total assets reported by the parent generally will be less than the total assets reported on the consolidated
balance sheet.
10. In the preparation of a consolidated income statement:
a. Income assigned to noncontrolling shareholders is always computed as a pro rata portion of the reported net
income of the consolidated entity.
b. Income assigned to noncontrolling shareholders is always computed as pro rata portion of the reported net
income of the subsidiary.
c. Income assigned to noncontrolling shareholders in the current period is likely to less than a pro rata portion of
the reported net income of the subsidiary in the current period if the subsidiary had an unrealized gain on an
intercorporate sale of depreciable assets in the preceding period.
d. Income assigned to noncontrolling shareholders in the current period is likely to be more than a pro rata
portion of the reported net income of the subsidiary in the current period if the subsidiary had an unrealized gain
on an intercorporate sale of depreciable assets in the preceding period.
11. In a consolidated balance sheet, the non-controlling (minority) interest under the equity concept is shown
A. separately within the equity section.
B. separately within the noncurrent liabilities.
C. separately within the noncurrent investments.
D. as part of the total current liabilities of the group.
12. In the separate financial statements of a parent entity, investments in subsidiaries that are not classified as
held for sale should be accounted for
A. at cost.
B. using the equity method
C. in accordance with PAS 39/PFRS 9.
D. at cost or in accordance with PAS 39/PFRS9
13. Under PFRS 10, when a parent loses control of a subsidiary, it must recognize any investment retained in
the former subsidiary at
A. carrying amount.
B. fair value, with any gain or loss recognized in profit or loss.
C. fair value, with any gain or loss recognized in other comprehensive income.
D. original acquisition cost, adjusted for any dividend received from the subsidiary.
14. A parent is not required to present consolidated financial statements when
A. the parent is wholly owned subsidiary.
B. the parent and the subsidiary are engaged in dissimilar activities.
C. there is a three-month time lag in the fiscal periods of the parent and its subsidiary.
D. the parent is virtually wholly owned provided parent does not obtain the approval of the owners of the
minority interest.
15. Under PAS 27, which supports the ENTITY concept, the non-controlling interests in the consolidated
statement of financial position must be prepared
A. within long-term liabilities.
B. within the parent shareholders' equity.
C. within equity but separate from parent's equity.
D. between long-term liabilities and current liabilities.
16. Under PFRS 10, an investor controls an investee if the investor has all following, except
A. The power over the investee.
B. Exposure or rights to variable returns from the involvement with the investee.
C. The ability to use the power over the investee to affect the amount of the investor's returns.
D. All of these indicate control
17. If the investor owns 60% of the investee's outstanding ordinary shares, the investor should generally account
for this investment under the
A. consolidation method.
B. consolidation equity method.
C. cost method.
D. fair value method.
18. The noncontrolling interest should be recorded at what amount?
A. The fair value of the shares not held by the acquirer.
B. The fair value of the shares not held by the acquirer or the proportionate share of the fair value of net
identifiable assets of the acquiree.
C. The proportionate share of the carrying amount of net identifiable assets of the acquiree.
D. The fair value of the shares held by the non-controlling interest plus goodwill.
19. Which of the following conditions are required to exclude a subsidiary from consolidation?
A. The parent must own 100% of the subsidiary.
B. The parent makes an election not to consolidate.
C. The other owners do not object to the non-consolidation.
D. The other owners do not object to the consolidation and the subsidiary does not have any publicly traded
debt or equity instruments.
20. Investor’s investment account is affected by investor’s share of the earnings of the investee after date of
acquisition under cost method and equity method, respectively
a. No effect, increase
b. Increase, Increase
c. Increase, No effect
d. No effect, No effect