Theories

1. True 21. False 41. True 61. c  81. b 101. c 121 a

2. False 22. True 42. False 62. b 82. a 102. d 122. b

3. True 23. False 43. a 63. c 83. d 103. d 123. b

4. True 24. True 44. c 64. d 84. a 104. d 124. c

5. False 25, True 45, b 65, d 85. c 105. c 125. b

6. True 26. False 46. b 66. a 86. d 106. d 126. c

7. False 27. True 47. d 67. a 87. c 107. d 127. c

8. True 28. False 48. c 68. d 88. a 108. d    

9. True 29. True 49. c 69. a 89. c 109. b    

10. True 30, True 50, b 70, b 90, d 110, c    

11. True 31. False 51. a 71. c 91. b 111. c    

12. True 32. True 52. b 72. A 92. a 112. c    

13. False 33. True 53. c 73. c 93. C 113. a    

14. False 34. False 54. a 74. c 94. B 114. d    

15. False 35. True 55. c 75. a 95. D 115. d    

16. True 36. True 56. b 76. d 96. A 116. c    

17. False 37. False 57. a 77. a 97. A 117. b    

 18. True 38. True 58. c 78. d 98. c 118. b    

19. True 39. False 59. a 79. b 99. d 119. b    

20. False 40, False 60, c 80, c 100, d 120. a    

ANSWERS IN RED :)
Good News : Those who have sent their answers thru PM will get a merit/incentive for
their FA. YES! REWARDED!
 

1. Which of the following statements best describes the term "control"?

The mutual sharing of risks and benefits

The holding of a significant proportion of the share capital in another entity
The power to participate in the financial and operating policy decisions of an entity
The power to govern the financial and operating policies of an entity so as to obtain
benefits from the activities
 

2. The application of the acquisition method of accounting for a business

combination requires all of the following, except

Identifying the acquirer

Determining the acquisition date
Not recognizing gain from bargain purchase
Recognizing and measuring the identifiable assets acquired, the liabilities assumed and
any non-controlling interest in the acquiree.
 

3. In different types of business combination, which of the following is not

considered as an acquirer?
The remaining or absorbing corporation in case of merger.
The absorbed corporation in case of consolidation.
The corporation that acquires more than 50% of the other corporation’s ordinary shares.
The corporation that controls the acquiree.
 

4. In a business combination, goodwill is measured as the excess of

The consideration transferred over the identifiable net assets acquired.

The total of the consideration transferred and the amount of any non-controlling interest
in the acquiree over the identifiable net assets acquired.
The total of the consideration received and the fair value of the previously held interest
in the acquiree over the identifiable net assets acquired.
The total of the consideration transferred, the amount of any non-controlling interest in
the acquiree and the fair value of previously held interest in the acquiree over the
identifiable net assets acquired.
 
5. Which of the following statements in relation to a business combination is true?
I. The acquirer shall recognize the acquiree's contingent liabilities if certain conditions
are met.
II. The acquirer shall recognize the acquiree's contingent assets if certain conditions are
met.
I only
Both I and II
II only 
Neither I nor II
 
7. As of acquisition date, the acquirer shall recognize, 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
Acquisition date fair values                                                    
Acquisition date face values
Acquisition date book values 
Acquisition date carrying values
 
8. What is the measurement of the consideration transferred or given up in a business
combination?
Acquisition date fair values
Acquisition date face values
Acquisition date book values
Acquisition date carrying values
 
9. 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?
One year or 12 months from the acquisition date
6 months from the acquisition date
3 months from the acquisition date
1 month from the acquisition date
 

9. Which of the following statements in relation to an acquisition date of a business

combination is incorrect?

The acquisition date can never precede the closing date.

The acquisition date is the date on which an acquirer obtains control over the acquiree.
Where several dates are key to a business combination, the date on which control
passes is the acquisition date.
The acquisition date is normally the "closing date" or the date on which the acquirer
legally transfers the consideration, acquires the assets and assumes the liabilities of the
acquiree.
 

10. What is the requirement with respect to the allocation of the cost of a business
acquisition?
Cost to be allocated based on fair value.
Cost to be allocated based on original cost.
Cost to be allocated based on carrying amount.
None of these
11. During the current year, an entity acquired another entity in a transaction properly
accounted for as a business combination. 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 items 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 items at a provisional amount measured at the date of
acquisition.
 

12. The contingent consideration of the acquired entity shall be recognized at fair
value. The existence of contingent consideration is often reflected in a lower
purchase price. Recognition of such contingent consideration shall

Increase the value attributed to goodwill, thus increasing the risk of impairment of
goodwill.
Decrease the value attributed to goodwill, thus decreasing the risk of impairment of
goodwill.
Decrease the value attributed to goodwill, thus increasing the risk of impairment of
goodwill.
Increase the value attributed to goodwill, thus decreasing the risk of impairment of
goodwill.
 

13. Which of the following accounting treatments for costs related to business
combination is incorrect?

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.
The costs related to issuance of stock 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
The costs related to issuance of financial liability at fair value through profit or loss shall
be recognized as expense while those related to issuance of financial liability at
amortized cost shall be recognized as deduction from the book value of financial liability
or treated as discount on financial liability to be amortized using effective interest
method.
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.
 

14. After this type of business combination, the acquired entity ceases to exist as a
separate legal or accounting entity. The acquirer records in its accounting records
the assets acquired and liabilities assumed in the business combination.

stock acquisition
acquisition of control without transfer of consideration
combination of mutual entities
asset acquisition
 

15. How is goodwill or gain from bargain purchase computed?

The difference between the consideration transferred, including non-controlling interest

in the acquiree, and the acquisition-date fair value of net identifiable assets acquired.
The difference between the purchase price and the acquisition-date fair value of net
identifiable assets acquired.
The difference between the sum of (a) consideration transferred; (b) non-controlling
interest in the acquiree; and (c) acquisition-date fair value of the acquirer’s previously
held equity interest in the acquiree; and the acquisition-date fair value of net identifiable
assets acquired.
The excess of the acquisition-date fair value of net identifiable assets acquired and
there carrying amounts in the acquiree's books.
 

16. The costs of issuing debt securities in a business combination are

expensed
included in the initial measurement of the debt securities issued
accounted for like a “discount" on liability
b and c
 

17. A business combination may be legally structured as a merger, a consolidation,

an investment in stock, or a direct acquisition of assets. Which of the following best
describes a business combination that is legally structured as a merger?

The surviving company is one of the two combining companies

The surviving company is neither of the two combining companies
An investor-investee relationship is established
A parent-subsidiary relationship is established
 

18. Which is true?

I       The acquiree is the entity that obtains control after the business combination.
II     The acquisition date in a business combination is normally the closing date.

1. I only C.     Both I and II

2. II only D.     Neither I nor II

 
19. Which is false?
I       According to PFRS 3 Business Combinations, a “gain on a bargain purchase” (or
‘negative goodwill) is recognized as an allocated deduction to the net identifiable assets
acquired in the year of business combination
II     An intangible asset that is unrecorded by the acquiree may nevertheless be
recognized by the acquirer in a business combination.
A. I only C.     Both I and II
B. II only D.     Neither I nor II
 

20. Consider the following

I       The two important elements in the definition of business combination under PFRS
3 are “business” and “combination.”
II     Under PFRS 3 Business Combinations, business combinations are accounted for
using the purchase method.

1. True, true C.     False, false

2. True, false D.     False, true