PROBLEM 1

On January 1, 2018, G&G Corporation issued 6,000 shares of its P 10 par value common stock to acquire
the assets and liabilities of Ford Company. G&G Corporation shares were selling at P 90 on that date.
Historical cost and fair value balance sheet data for Ford Company at the time of acquisition were as
follows:
Balance Sheet Item Historical Cost Fair Value
Cash and Receivables P 50,000 P 50,000
Inventory 120,000 200,000
Building & Equipment 400,000 300,000
Less: Accumulate Depreciation (150,000) -
Total Assets P 420,000 P 550,000
Accounts Payable P 50,000 P 50,000
Common Stock (P 20 par value) 200,000
Retained Earnings 170,000
Total Liabilities and Equities 420,000

1. G&G Corporation incurred but not paid listing fees of P 10,000 and audit fees of P 5,000
in issuing the new shares and paid a finder’s fee of P 25,000 in locating the merger
candidate. Under the purchase of interest combination, how much goodwill must be
recognized in the books?
A. P 40,000 B. P 55,000 C. P 65,000 D. P 80,000

PROBLEM 2
On January 1, 2018. Masunurin Products Corp. issues 12,000 shares of its P 10 par value to acquire the
net assets of Pasaway Steel Company. Underlying book value and fair value information for the balance
sheet items of Pasaway Steel Company at the time of acquisition are as follows:
Balance Sheet Item Book Value Fair Value
Cash P 60,000 P 60,000
Accounts Receivable 100,000 100,000
Inventory 60,000 115,000
Land 50,000 70,000
Buildings and Equipment 400,000 350,000
Less Accumulated Depreciation (150,000) -
Total Assets P 520,000 P 695,000
Accounts Payable P 10,000 P 10,000
Bonds Payable 200,000 180,000
Common Stock (P 5 par value) 150,000
Additional Paid in Capital 70,000
Retained Earnings 90,000
Total Liabilities and Equities 520,000

Pasaway Steel shares were selling at P 18 and Masunurin Products shares were selling at P 50 just before
the merger announcement. Additional cash payments made by Masunurin Corporation in completing
the acquisition were:
Finder’s fee paid to firm that located Pasaway Steel P 10,000
Audit fee for stock issued by Masunurin Products 3,000
Stock registration fee for new shares of Masunurin Products 5,000
 Legal fees paid to assist in transfer of net assets 9,000
Cost of SEC registration of Masunurin Products shares 1,000

1. How much is the increase in the total net assets recorded by Masunurin
Products?
A. P 310,000 B. P 572,000 C. P 591,000 D. P 487,000

PROBLEM 3
Saming Company acquired the assets (except for cash) and assumed the liabilities of Moshie Company
on January 2, 2018 and Moshie Company is dissolved. As compensation, Saming Company gave 24,000
shares of its common stock, 12,000 shares of its 8% preferred stock, and cash of P 240,000 to the
stockholders of Moshie Company. On the date of acquisition, Saming Company had the following
characteristics:
Common, par value P 5; fair value, P 20 Preferred, par value P 100; fair value, P 100
Immediately prior to acquisition, Moshie Company’s balance sheet was as follows:
Cash P 132,000 Current Liabilities P 228,000
Accounts receivable Bonds payable, 10% 400,000
(net of P 4,000 allowance) 170,000 Common stock, P 5 par value 600,000
Inventory – LIFO cost 200,000 Additional paid-in capital 380,000
Land 384,000 Retained earnings 310,000
Buildings and equipt. (net) 1,032,000
P 1,918,000 P 1,918,000
An appraisal of Moshie company showed that the fair values of its assets and liabilities were equal to
their book values except for the following, which had fair values as indicated:
Accounts receivable P 158,000 Land P 540,000
Inventory 412,000 Bonds payable 448,000

1. How much must be the goodwill recognized as a result of this business

combination?
A. P 322,000 B. P 454,000 C. P 94,000 D. P0

PFRS 3 Drill Problems:

1. PFRS 3 is not applicable to business combination of the following, except
a. Mutual entities c. Subsidiary acquired with a view to sale
b. Jointly controlled entities d. Entities under common control
2. The business or businesses that the acquirer obtains control of in a business combination.
a. Business combination b. Acquirer c. Acquiree d. mutual entity
3. An entity that acquires control is
a. Business combination b. Acquirer c. Acquiree d. mutual entity
4. The date on which the acquirer obtains control of the acquiree
a. Acquisition date b. Settlement date c. Measurement date d. Agreement
date
5. An integrated set of activities and assets that is capable of being conducted and managed for the
purpose of providing a return in the form of dividends, lower costs or other economic benefits
directly to investors or other owners, members or participants.
 a. Segment b. business c. entity d. group of assets
6. A transaction or other event in which an acquirer obtains control of one or more businesses.
a. Purchase b. Pooling of interest c. Business combinationd. Merger
7. A business combination in which a new corporation is formed to take over the assets and operations
of two or more separate business entities, with the previous separate entities being dissolved, is a:
a. Consolidation b. Merger c. Pooling of interest d. Purchase
8. The power to govern the financial and operating policies of an entity so as to obtain benefits from its
activities.
a. Significant influence c. Joint control c. Control d. Dominance
9. An identifiable non-monetary asset without physical substance.
a. Intangible asset b. Identifiable asset c. Goodwill d. Unrecognized asset
10. An asset representing the future economic benefits arising from other assets acquired in a business
combination that are not individually identified and separately recognized.
a. Intangible asset b. Identifiable asset c. Goodwill d. Unrecognized asset
11. An entity, other than an investor-owned entity, that provides dividends, lower costs or other economic
benefits directly to its owners, members or participants.
a. Investment house b. Cooperatives c. Business d. Mutual entity
12. The equity in a subsidiary not attributable, directly or indirectly, to a parent.
a. Controlling interest b. Legal parent c. Economic subsidiary d. Non-controlling
interest
13. This term includes holders of equity interests of investor-owned entities and owners or members of,
or participants in, mutual entities.
a. Investors b. Venturers c. Owners d. Controlling interest
14. The elements of a business do not include
a. Input b. Process d. Output d. Throughput
15. A reasonable period after the acquisition date during which PFRS 3 allows the acquirer to obtain
information necessary to identify and measure assets and liabilities of the acquiree
a. Allocation period b. Settlement period c. Measurement period d. Recognition period
16. The measurement period shall not exceed
a. One year from the date of acquisition c. 2 year from the date of acquisition
b. One year from the date of settlement d. 2 year from the date of settlement
17. Values which the standards allows as temporary valuation for items of assets and liabilities until the
necessary information becomes available
a. Trial and error value b. Provisional amounts c. Assigned values d. Transitory values
18. The acquisition of a group of asset which does not constitute business is treated as
a. a business acquisition. b. an exchange of asset. c. an asset acquisition. d. non-reciprocal
transfer.
19. Anders acquired a manufacturing facility from Bane for a total consideration of P6,000,000. The
facility contains 4 equipment with fair value of P1,500,000, a building with appraisal value of
P2,500,000 and land with appraised value of P4,000,000. Compute the goodwill or gain from bargain
purchase.
a. P 0 b. P1,500,000 c. P2,000,000 d. P3,000,000
In the immediately preceding problem, at what value will the equipments be recognized, respectively,
in the financial statements of Anders?
a. P 0 b. P1,125,000 c. P1,500,000 d. P2,000,000
20. Acquisition related costs are treated as
a. part of goodwill. c. adjustment to the cost of combination.
b. expense. d. contingent consideration.
21. In a purchase business combination, the direct cost of registering and issuing equity securities to as
consideration in a business combination are
a. Added to the parent/investor company’s investment account
b. Charged against share premium of the acquirer
c. Deducted from income in the period of combination
d. None of the above
22. An acquirer in a business combination may obtain control of an acquiree in a variety of ways which
do not include
a. Incurring liability d. Transfer of cash, cash equivalent or other asset
b. Issuing equity interest e. Entering into contract without transfer of consideration
c. Liability transfer
23. Business combination may be structured in variety of ways for legal, taxation or other reasons and
may include the following, except
a. one or more businesses become subsidiaries of an acquirer or the net assets of one or more
businesses are legally merged into the acquirer
b. one combining entity transfers its net assets, or its owners transfer their equity interests, to
another combining entity or its owners
c. all of the combining entities transfer their net assets, or the owners of those entities transfer their
equity interests, to a newly formed entity (sometimes referred to as a roll-up or put-together
transaction)
d. a group of former owners of one of the combining entities obtains control of the combined entity
e. None of these
24. Which is correct regarding business combination?
a. Formation of a joint is considered business combination.
b. The acquisition date is the date the acquiree obtains control of the acquirer
c. Acquisition of an asset or group of asset can be considered business combination.
d. Only those liabilities assumed that are present obligation and can be measured reliably
25. The acquisition date is normally the
a. Closing date b. Agreement date c. Date of exchange d. Settlement date
26. Assets and liabilities acquired in a business combination are measured at
a. Agreement date fair value c. Settlement date fair value
b. Acquisition date fair value d. Any of these.
27. LMN’s acquisition date of GHI for cash proceeded as follows:
January 23, 2009 Approach made to the management of GHI seeking endorsement of the acquisition
March 20, 2009 Public offer made for 100% of the equity shares of GHI, conditional on regulatory
approval, shareholder approval and receiving acceptances representing 60% of GHI
shares
June 14, 2009 Receipt of regulatory approval
July 1, 2009 Receipt of shareholder approval
July 30, 2009 Acceptances received to date represents 50% of GHI’s share
August 15, 2009 Acceptance received to date represents 95% of GHI’s share
August 25, 2009 Cash paid out to GHI’s accepting shareholder
November 13, 2009 Cash paid out to the remaining shareholder under a compulsory share acquisition
scheme
 The date of acquisition is
a. June 14, 2009 b. July 1, 2009 c. July 30, 2009 d. August 15, 2009
28. Non-controlling interest in the acquire is measured at the acquisition date at
a. Fair value c. Either A or B
b. Proportional interest in investee’s net assets d. Both A and B
29. An entity shall account for each business combination by applying the
a. Acquisition method b. Pooling of interest method c. Consolidation method d. Any of the
above

30. Applying the acquisition method do not require

a. Indentifying the acquirer
b. Determining the acquisition date
c. Recognizing an investment in subsidiary account
d. Recognizing and measuring goodwill or gain from a bargain purchase
31. Which is incorrect regarding the recognition conditions for identifiable assets acquired or liabilities
assumed in a business combination?
a. Assets acquired and liabilities assumed must meet the definition of assets and liabilities in the
Framework for the Presentation of Financial Statements at the acquisition date.
b. The identifiable assets acquired and liabilities assumed must be part of what the acquirer and the
acquire exchange in the business combination rather than the result of separate transaction.
c. The acquirer must not recognize assets that are not currently recognized in the books of the
acquiree.
d. Contingent liability assumed in a business combination should be recognized if it is a present
obligation that arise from past event and can be measured reliably.
32. The seller in a business combination may contractually agree to indemnify the acquirer for the
outcome of a contingency or uncertainly related to all or part of a specific asset or liability. Such
arrangement will give rise to a/an
a. Insurance asset b. Intangible asset c. Probable asset d.
Indemnification asset
33. The consideration transferred in a business combination do not include
a. Fair value of assets transferred c. Non-controlling interest in the acquiree
b. Fair value of liabilities incurred d. Equity interest issued by the acquirer
34. Should the following costs be included in the consideration transferred in a business combination,
according to PFRS3 Business combinations?
1) Costs of maintaining an acquisitions department.
2) Fees paid to accountants to effect the combination.
Cost (1) Cost (2) Cost (1) Cost (2)
a. No No c. Yes No
b. No Yes d. Yes Yes
35. Are the following statements about an acquisition true or false, according to PFRS3Business
combinations?
2) The acquirer should recognize the acquiree's contingent liabilities if certain conditions are met.
3) The acquirer should recognize the acquiree's contingent assets if certain conditions are met.
Statement (1) Statement (2) Statement (1) Statement (2)
a. False False c. True False
b. False True d. True True
36. An acquirer in a business combination may acquire control of an acquiree without transferring
consideration. This may occur under the following circumstance, except:
a. The acquiree repurchases a sufficient number of its own shares for an existing investor (the
acquirer) to obtain control.
b. Minority veto rights lapse that previously kept the acquirer from controlling an acquiree in which
the acquirer held the majority voting rights.
c. The acquirer and acquiree agree to combine their businesses by contract alone.
d. None of these.