1.

Some changes in the fair value of contingent consideration that the

acquirer recognizes after the acquisition date may be the result of additional
information that the acquirer obtained after the date about facts and circumstances
that existed at the acquisition date. These are called measurement period
adjustments that can be adjusted during the measurement 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 acquisition
date? 

Ans: 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. 

2. Which of the following situations best describes a business combination

to be accounted for as a statutory merger?

Ans: Only one of the combining companies survives and the other loses its separate
identity.

3. How shall an acquirer in a business combination account for the changes

in fair value of contingent consideration classified as equity instrument if the
changes result from events after the acquisition date? 
Ans: Contingent consideration classified as equity shall not be measured and its
subsequent settlement shall be accounted for within equity because they are not
measurement period adjustments. 

4. Which statement is incorrect concerning an acquirer?

Ans: If a new entity is formed to issue equity interests to effect a business
combination, the new entity formed is necessarily the acquirer.

5. The “excess of the acquirer’s interest in the net fair value of

acquiree’s identifiable assets, liabilities, and contingent liabilities over cost”
(formerly known as negative goodwill) should be
Ans: Reassessed as to the accuracy of its measurement and then recognized
immediately in profit or loss.

6. It refers to the date on which the acquirer obtains control of the

acquiree. 
Ans: Acquisition date

7. How shall the acquirer account for its previously held equity interest
in the acquire upon obtaining control of the acquire or how shall an acquirer
account for a business combination achieved in stages a.k.a. step acquisition? 
Ans: The acquirer shall measure its previously held equity interest in the acquiree
at its acquisition-date fair value and recognize the resulting gain or loss in
profit / loss. 

8. Which one of the following reasons would not contribute to the creation
of negative goodwill?
Ans: Making acquisitions at the top of a “bull” market for shares.

9. What is the measurement of the consideration transferred or given up in

a business combination? 
Ans: Acquisition date-fair values

10. If the aggregate of the (a) consideration transferred measured in

accordance with this IFRS, generally requires acquisition-date fair value; (b) the
amount of any non-controlling interest in the acquire measured in accordance with
PFRS 3; and (c) in a business combination achieved in stages, the acquisition-date
fair value of the acquirer’s previously helf equity interest in the acquire is less
than the net of the acquisition-date amounts of the identifiable assets acquired
and the liabilities assumed measured in accordance with PFRS 2 (FVNAA), the
difference shall be classified as
Ans: Gain on bargain purchase to be presented as part of profit or loss

11. In a business combination, goodwill is measured as

Ans: 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.

12. For each business combination, the acquirer shall measure at the
acquisition date components of non-controlling interest (NCI)in the acquire 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
Ans: a.
Fair value

b.
The present ownership instruments’ proportionate share in the recognized amounts of
the acquiree’s identifiable net assets. 

13. Under PFRS 3, what is the treatment of acquisition related costs in

business combination? 
Ans: It shall be expensed as incurred and presented as part of profit or loss. 

14. Applying acquisition method for business combination requires the

following steps, except
Ans: Using equity methods

15. 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 acquire, 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
acquire, the difference  shall be treated by the acquirer as
Ans: 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. 

16. Under PFRS 3, how shall an entity (acquirer) account for each business
combination? 
Ans: Acquisition method

17. PFRS 3 requires all identifiable intangible assets of the acquired

business to be recorded at their fair values. Many intangible assets that may have
been subsumed within goodwill must be now separately valued and identified. Under
PFRS 3, when would an intangible asset be “identifiable”?
Ans: When it meets the definition of an asset in the Conceptual Framework document
only.

18. Which of the following statements concerning the identification of the

acquirer in a business combination is incorrect? 
Ans: In business combination through merger, the acquirer is the absorbed
corporation after the business combination.
 19. In accounting for business combination, which of the following
intangibles should not be recognized as an asset apart from goodwill?
Ans: Employee quality

20. Which of the following examples is unlikely to meet the definition of

an intangible asset for the purpose of PFRS 3?
Ans: Pure research based, such as general expenditure on research.

21. What date should be used as the acquisition date for a business
combination?
Ans: The date when the acquirer obtains control of the acquiree

22. 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? 
Ans: 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.

23. Under PFRS 3, contrary to PAS 37, what is the recognition principle of
contingent liability assumed in a business combination? 
Ans: The acquirer shall recognize as of the acquisition date a contingent liability
assumed in a business combination if it is present obligation that arises from past
events and its fair value can be measured reliably even only reasonably possible. 

24. As of the 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
Ans: Acquisition date-fair values

25. 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? 
Ans: One year or 12 months from the acquisition date

26. PFRS 3 defines it as a transaction or other event in which an acquirer

obtains control of one or more businesses. 
Ans: Business combination

27. In different types of business combination, which of the following is

not considered as an acquirer?
Ans: The absorbed corporation in case of consolidation.  

28. Which of the following accounting treatments for costs related to

business combination is incorrect? 
Ans: 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. 

29. In a purchase business combination, the direct acquisition, indirect

acquisition, and security issuance costs are accounted for as follows,
respectively:
Ans: Expensed; Expensed; Deduction from value of security issued

30. Which of the following costs should be capitalized and amortized over
their estimated useful lives? (1) Costs of goodwill from purchase business (2)
Costs of developing combination goodwill internally
Ans: No;no

Midterm:

1. PFRS 10 defines them as the financial statements of a group in which

assets, liabilities, equity, income, expenses and cash flows of the parent and its
subsidiaries are presented as those of a single economic unit.
Ans. Consolidated financial statements

2. Which of the following statements concerning the preparation of

consolidated financial statements by a parent is incorrect?
Ans: . 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.

3. Under PFRS 10, parent corporation is the entity that controls one or
more entities. How does PFRS 10 define control?
Ans: An investor controls an investee when it is exposed, or has right to variable
returns from the investment with the investee and has the ability to affect those
returns through the power over the investee.

4. Under PFRS 10, it refers to the term used to describe the ownership of
the largest block of voting rights in a situation where the remaining rights are
widely dispersed even if it is less than the majority interest thereby requiring
the holder of such interest to prepare consolidated financial statements?
Ans: De facto control

5. Parent Corporation has 51% interest in listed entity Sub Inc. Sub is a
highly-leveraged and started making losses. Parent decided to sell 2% to an
investment bank. The post-sale structure shows that Parent Corp. has only 49%
interest, investment bank has 2% interest and the remaining 49% interest owned by
many shareholders other than the investment bank each with less than 1% of votes
and there is no arrangement among them to vote collectively. Upon the sale, Parent
Corporation can easily reacquire controlling interest in Sub by buying shares in
the market and expects to continue managing Sub through election of directors in
Sub’s general meeting. Sub Inc. is listed with deep and liquid market for shares.
Is the Parent still required to consolidate Sub Inc. in its consolidated financial
statements despite less than majority ownership?
Ans: Yes because there is de facto control on the part of Parent Corp. over the
relevant activities of Sub Inc.

6. 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?
Ans: Yes because X controls the investee’s relevant activities that is managing the
receivables upon default which significantly affects the investee’s returns.

7. How shall the parent corporation present the Non-controlling Interest

(NCI) in the Consolidated Statements of Financial Position?
Ans: It shall be presented within Consolidated Stockholder’s Equity, separately
from the equity of the owners of the parent.

8. Which of the following income items shall affect both NCI to Parent /
(CONSOLIDATED RETAINED EARNINGS) and NON-CONTROLLING INTEREST NET INCOME/ (NCI NET
ASSETS) in reconciliation from cost method to acquisition method?
Ans: Unrealized / realized income / expense arising from transactions between two
subsidiaries owned by the same parent.

9. Which of the following income items shall affect CONTROLLING NET INCOME
to Parent / (CONSOLIDATED RETAINED EARNINGS) only but not NON-CONTROLING INTEREST
NET INCOME (NCI NET ASSETS) in reconciliation from cost method to acquisition
method?
Ans: Dividend income of parent coming from subsidiary.

10. PAS 27 as amended defines Separate Financial Statements as those

presented by a parent or an investor with joint control of, or significant
influence 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
Ans: Any of the above

11. Which of the following statements concerning the requirement of PAS 27

for preparation of Separate Financial Statements is incorrect?
Ans: PAS 27 as amended mandates the entities which shall present separate financial
statements.

12. When the parent corporation elects to account its investments in

subsidiaries, associates or jointly controlled entities in its separate financial
statements using cost model or fair value model, how shall it recognize its
dividends from a subsidiary, joint venture or associate?
Ans: The dividends from 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.

13. When the parent corporation elects to account its investments in

subsidiaries, associates or jointly controlled entities in its separate financial
statements using equity method, how shall it recognize its dividends from a
subsidiary, joint venture or associate?
Ans: . The dividends from a subsidiary, joint venture or associate shall be
recognized as deduction from investment account when its right to receive dividend
is established.

14. According to PFRS 10, which of the following is not an element of

control?
Ans: Major holdings

15. The following costs are not included as part as part of restructuring
provisions, except:
Ans: To exit an activity of the acquire

16. On January 1, 2020, Entity A acquired 70% of outstanding ordinary

shares of Entity B at a price of P210,000. On the same date, the net assets of
Entity B were reported at P260,000. On January 1, 2020, Entity A reported retained
earnings of P2,000,000 while Entity B reported retained earnings of P200,000. All
the assets and liabilities of Entity B are fairly valued except machinery which is
undervalued by P80,000 and inventory which is overvalued by P10,000. The said
machinery has remaining useful life of four years while 40% of the said inventory
remained unsold at the end of 2020. For the year ended December 31, 2020, Entity A
reported net income of P1,000,000 and declared dividends of P150,000 in the
separate financial statements while Entity B reported net income of P150,000 and
declared dividends of P20,000 in the separate financial statements. Entity A
accounted the investment in Entity B using cost method in the separate financial
statements. What is the non-controlling interest in net assets on December 31,
2020?
Ans: 133,800

17. What is the consolidated net income attributable to parent shareholders

for the year ended December 31, 2020?
Ans: 1,102,200

18. What is the amount of consolidated retained earnings on December 31,

2020?
Ans: 2,952,200

19. On January 2, 2020, Fever Company acquired 60% of the outstanding shares of
Benz Inc. resulting to an income from acquisition in the amount of P330,000. During
2020 and 2021, intercompany sales amounted to P6,800,000 and P9,400,000,
respectively. Fever Company consistently recognized a 30% gross profit on sales
while Benz Inc. had a 40% gross profit on sales. The inventories of the buying
affiliate were as follows: ¾ of the beginning inventory came from inter-company
transactions and 1/3 of the ending inventory came from outsiders. The December 31,
2020 inventory of Fever and Benz amount to P840,000 and P350,000, respectively. The
December 31, 2021 inventory of Fever and Benz amount to P570,000 and P150,000,
respectively.
On September 1, 2020, Benz Inc., purchased a piece of land costing P3,500,000 from
Fever Company for P5,250,000. On November 2, 2021, the buying affiliate sold this
land to Jam Co. for P7,500,000. On the other hand, on May 1, 2021, Benz, Inc. sold
a machinery with a carrying value of P430,000 and remaining life of 4 years to
Fever Company for P190,000. Benz Inc. declared dividends in 2021 in the amount of
P600,000. Separate Statement of Comprehensive Income for the two companies for the
year 2021 follow:
Fever Company Benz Inc.
Sales P21,500,000 P10,000,000
Cost of sales (13,500,000) (6,200,000)
Gross profit P8,000,000 P3,800,000
Operating expenses (3,240,000) (1,100,000)
Operating profit P4,760,000 P2,700,000
Gain on sale of Land 2,250,000
Loss on sale of Machinery (240,000)
Dividend revenue 450,000 110,000
Net income P5,210,000 P4,820,000
Compute the following amounts for/as of December 31, 2021
Consolidated Gross Profit

Ans. 11,948,750

20. Consolidated net income attributable to Parent

Ans: 9,720,750

21. 1. A Co. acquired 60% of the outstanding ordinary shares of B Co. on

January 2, 2021. A Co. acquired it at book value which is the same as its fair
value at the date of acquisition. Income statements of A Co. and B Co. for 2022
were as follows:
A B
Net Sales 875,000 350,000
Cost of Sales 525,000 210,000
Gross Profit 350,000 140,000
Operating expenses 105,000 52,500
Operating income 245,000 87,500
Dividend income 56,000
Net income 301,000 87,500
There was an upstream sales of P112,000 in 2021 and P168,000 in 2022.
21. • The buying affiliate reported inventory on December 31, 2021
amounting to P70,000 of which 20% comes from the selling affiliate and inventory on
December 31, 2022 amounting to P84,000 of which 30% comes from the selling
affiliate.• A Co. uses 30% mark up on cost and B Co. uses 25% mark up on cost for
their selling prices.• A Co. and B Co. declared and paid dividends in 2022
amounting to P84,000 and P70,000 respectively.• On January 1, 2022, B Co. has
ordinary shares of P320,000; share premium of P120,000 and retained earnings of
P160,000. How much is the non-controlling interest in net assets?
Ans: 244,984

22. . Papa acquired a 90% interest in Son Inc. at book value on January 2,
2030. The intercompany profit and sale for 2030 and 2031 are as follows:
Sales of Son to Papa Intercompany profit on inventory at Dec. 31
2030 6,750,000 540,000
2031 13,500,000 1,080,000
The selected data from the financial statements of Papa and Son for the year ended
December 31, 2031 are as follows:
Statement of Financial Position Papa Son
Inventory 6,750,000 3,600,000
Retained Earnings, Dec. 31, 2031 19,125,000 9,900,000
Ordinary Share 22,500,000 13,500,000
Statement of Comprehensive Income Papa Son
Sales 40,500,000 27,000,000
Cost of Sales 28,125,000 13,500,000
Expenses 10,125,000 6,750,000
Income from Son 5,589,000
How much is the consolidated gross income for 2031?

Ans: P25,335,000

23. How much is the non-controlling interest in net income of subsidiary

for 2031?
Ans: 621,000

24. How much is the total consolidated net income for 2031?
Ans: 8,460,000

25. How much is the non-controlling interest in net assets of subsidiary

for 2031?
Ans: 2,286,000

26. On July 1 2023, Larys Company purchased 80% of the outstanding shares
of Harrold Company at a cost of P1,600,000. On that date Harrold had P1,000,000
capital stock and P1,400,000 of retained earnings. For 2023, Larys had income of
P560,000 from its separate operations and paid dividends of P300,000. For 2023,
Harrold reported income of P130,000 and paid dividends of P60,000. All the assets
and liabilities of Harrold have book values equal to their respective fair market
values. Assume income was earned evenly throughout the year except for the
intercompany transaction on October 1.  On October 1, 2023, Larys purchased an
equipment from Harrold for P200,000. The book value of the equipment on that date
was P240,000. The loss of P40,000 is reflected in the income of Harrold indicated
above. The equipment is expected to have a useful life of 5 years from the date of
sale. In the December 31, 2023, consolidated statement of financial position, how
much is the consolidated net income attributable to the parent company?
Ans: 946,400

28. Marie Co. acquired inventories on June 1, 2029, from its 75% owned
subsidiary, Paz Company. The inventories were sold for P86,000, including the 20%
mark up on cost. Out of these inventories, 60% were sold to outsiders. During the
year, Marie reported net income of P185,000 and Paz reported net income of
P125,000. How much is the realized profit to be allocated to non-controlling
interest in 2030?
Ans: P1,433

29. Basty Corp. owns 100% of the ordinary share of both Zoe Inc. and Angel
Co. Zoe purchases inventory from Angel’s at 125% of Angel’s cost. During 2030,
Angel sold inventory to Zoe that it had purchased for P50,000. Zoe sold all of this
inventory to unrelated parties for P113,784 during 2030. In preparing combined
financial statements for 2030, Basty’s bookkeeper disregarded the common ownership
of Zoe and Angel. What amount should be eliminated from cost of goods sold in the
combined income statement for 2030?
Ans: 62,500

30. What amount was unadjusted revenue overstated in the combined income
statement for 2030?
Ans: 62,500

31. 31. INTERCOMPANY TRANSACTIONS must be eliminated when preparing

consolidated financial statements because the parent and its subsidiary are viewed
as a single reporting entity.
32. The basis for consolidation is CONTROL
33. What do you call the parent and its subsidiaries. GROUP
34. PROTECTIVE RIGHTS are rights designed to protect the interest of the
party holding those rights without giving that party power over the entity to which
those rights relate.

35. IN TRANSIT ITEMS are items arising from intercompany transactions that were
already recorded by one party but not yet by the other.

36. TRUE. The financial statements of the parent and its subsidiaries used in
preparing consolidated financial statements shall have the same reporting dates.

37. FALSE. When assessing whether an entity controls an investee, a parent shall
consider potential voting rights even if it is not currently exercisable.

38. TRUE. Only upstream sales affect the subsidiary’s net assets, and consequently
the NCI.

39. TRUE.A parent loses control of a subsidiary in much the same way it can obtain
control.

40. TRUE. Control is lost even without a change in the parent’s ownership interest
when the subsidiary becomes subject to the control of a government, court,
administrator or regulator, of as a result of a contractual agreement.

Finals

1. Uwu Company operates in a hyperinflationary economy. Its balance sheet

at December 31, 2019, follows: 

Baht ('000)
Property, plant and equipment 900
Inventory 2,700
Cash 350
Share Capital (issued 2015) 400
Retained earnings 2,350
Non-current liabilities 500
Current liabilities 700
The general price index had moved in this way: 
2015 100
2016 130
2017 150
2018 240
2019 300
The property, plant and equipment was purchased on December 31, 2018, and there is
a six months' inventory held. The noncurrent liabilities were a loan raised on
March 31, 2019. 
The total assets after adjusting entries for hyperinflation should be: ('000)
Ans: 5,150

2. Rupok Yarn Company reported the following liabilities in the statement

of financial position: 
Accounts payable 1,000,000
Accrued expenses 500,000
Bonds payable 3,000,000
Finance lease liability 4,000,000
Unearned revenue 300,000
Advances from customers 1,200,000
Estimated warranty liability 200,000
Deferred tax liability 400,000
In preparing financial statements in a hyperinflationary economy, what total amount
should be classified as monetary liabilities? 
Ans: 8,500,000

3. Uwu Company operates in a hyperinflationary economy. Its balance sheet

at December 31, 2019, follows: 
Baht ('000)
Property, plant and equipment 900
Inventory 2,700
Cash 350
Share Capital (issued 2015) 400
Retained earnings 2,350
Non-current liabilities 500
Current liabilities 700
The general price index had moved in this way: 

2015 100
2016 130
2017 150
2018 240
2019 300
The property, plant and equipment was purchased on December 31, 2018, and there is
a six months' inventory held. The noncurrent liabilities were a loan raised on
March 31, 2019. Determine the retained earnings on December 31, 2019: ('000)
Ans: 2,750

4. Burgerkasakin Company provided the following information for the

current year: 
Net monetary assets - January 1 880,000
Sales 3,900,000
Purchases 2,340,000
Expenses 975,000
Income tax 585,000
Cash dividend paid on December 31 200,000
The sales, purchases, expenses and income tax accrued evenly during the year. 
Index numbers are 110 on January 1 and 280 on December 31. What amount should be
recognized as gain or loss on purchasing power for the current year? 
Ans: 1,360,000

5. Sheeesh! Company reported the following historical income statement for

2019: 

Sales 5,000,000
Inventory - January 1 350,000
Purchases 2,500,000
Inventory - December 31 500,000
Expenses 2,000,000
Depreciation 2,000,000
• Sales are earned and expenses are incurred evenly throughout the year. 
• Inventory was acquired during the last week of each year. 
• Depreciable assets have a 5-year life and were acquired on January 1,
2016. 
• The general index numbers were 125 on January 1, 2016, 140 on January
1, 2019, 360 on December 31, 2019. 
What amount should be reported as sales after restatement for hyperinflation? 

Ans. 7,200,000

6. Sheeesh! Company reported the following historical income statement for

2019: 

Sales 5,000,000
Inventory - January 1 350,000
Purchases 2,500,000
Inventory - December 31 500,000
Expenses 2,000,000
Depreciation 2,000,000
• Sales are earned and expenses are incurred evenly throughout the year. 
• Inventory was acquired during the last week of each year. 
• Depreciable assets have a 5-year life and were acquired on January 1,
2016. 
• The general index numbers were 125 on January 1, 2016, 140 on January
1, 2019, 360 on December 31, 2019. 
If the entity is operating in a hyperinflationary economy, what amount should be
reported as net loss? 
Ans: 5,440,000

1. The following are examples of non-monetary item, except: 

Ans: Bond Payable

2. CURRENT COST ACCOUNTING involves the restatement of historical cost in

terms of current cost. 
3. The following are the factors in determining the functional currency,
except: 
ANS: NONE OF THE CHOICES

4. What is the company's functional currency? 

ANS: the currency of the primary economic environment in which it operates. 
5. RETAINED EARNINGS is neither monetary nor non-monetary - it is a
residual amount, a balancing figure after restatement. 
6. Hyperinflation was experienced in the Philippines during World War II
where the circulated money under the Japanese occupation was called MICKEY MOUSE
MONEY because it is similar to play money and is next to worthless. 
7. TRUE. Under constant peso accounting, all items in the statement of
profit or loss and other comprehensive income are restated. 
8. The following are examples of monetary items, except: 
ANS: INVENTORY
9. The formula for restatement is historical cost x Current Price Index /
ANS: HISTORICAL PRINCE INDEX

10. The presentation currency is: 

ANS: Used in the parent's ad in the group's consolidated financial statements

11. Holdings gains and losses are recognized under CURRENT COST ACCOUNTING
12. Conventional financial statements are prepared using the STABLE
MONETARY UNIT ASSUMPTION
13. When restating financial statements in accordance with PAS 29 Financial
Reporting in Hyperinflationary Economies, 
ANS: Only non-monetary items, statement of financial position amounts not already
expressed in terms of the measuring unit current at the end of the reporting
period, are restated. 

14. Bejeweled Co. operates under a hyperinflationary economy. Hila computed

the increase in current cost of inventory as follows: Increase in current cost
(nominal pesos) P15,000Increase in current cost (constant pesos) P12,000What amount
should Hila disclose as the inflation component of the increase in current cost of
inventories? 
ANS: 3,000

15. FALSE. Monetary items are money held and items to be received or paid
in fixed or determinable amount of money. All the other items in the balance sheet
are non-monetary items.