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Accounting For Business Combination - Practice Material

The document discusses accounting for business combinations under Philippine Financial Reporting Standards (PFRS) 3. It addresses topics such as how to classify a business combination, accounting for goodwill and excess assets, measurement of assets and liabilities acquired, accounting for acquisition costs, what constitutes a business combination, and types of business combinations. The document contains both multiple choice and true/false questions to test understanding of key concepts in accounting for business combinations according to PFRS 3.

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ZYRENE HERNANDEZ
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90 views

Accounting For Business Combination - Practice Material

The document discusses accounting for business combinations under Philippine Financial Reporting Standards (PFRS) 3. It addresses topics such as how to classify a business combination, accounting for goodwill and excess assets, measurement of assets and liabilities acquired, accounting for acquisition costs, what constitutes a business combination, and types of business combinations. The document contains both multiple choice and true/false questions to test understanding of key concepts in accounting for business combinations according to PFRS 3.

Uploaded by

ZYRENE HERNANDEZ
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

A business combination must be accounted for as:


a. An acquisition
b. A pooling
c. A merger
d. A consolidation
2. The excess of the price paid over the fair value of net identifiable assets acquired should be
recognized as:
a. Goodwill to be amortized periodically for 20 years.
b. Expenses immediately.
c. Goodwill not subject to amortization but subject to impairment.
d. Goodwill to be amortized for 40 years.
3. In an acquisition-type combination, the appropriate accounting for the excess of fair values of
net assets acquired over the price paid is to:
a. Recognize as income in the books of the acquirer
b. Recognize as additional paid-in capital in the books of the acquirer
c. Reduce proportionately current fair values assigned to the acquiree’s non-current assets
and recognize any remaining excess as a deferred credit.
d. Reduce proportionately current fair values assigned to the acquiree’s non-current assets
other investments in the marketable securities and recognize any remaining excess as a
deferred credit.
4. This is defined as holders of equity interest of investor-owned entities, or members and
participants in mutual entities.
a. Shareholders
b. Investors
c. Owners
d. Participants
5. What is the initial measurement of the identifiable assets and liabilities assumed in a business
combination?
a. Acquisition date at fair vale
b. Acquisition date carrying amount
c. Acquisition date present value of cash flows
d. Acquisition date historical cost
6. Acquisition costs incurred and related to a business combination should be
a. Allocated on a prorate basis to the nonmonetary assets acquired
b. Capitalized a part of goodwill and tested annually for impairment
c. Capitalized as other asset and amortized over five years
d. Expenses as incurred in the current period.
7. A business combination occurs when a company acquires an equity interest in another entity
and has
a. at least 20% ownership in the entity.
b. more than 50% ownership in the entity.
c. 100% ownership in the entity.
d. control over the entity, irrespective of the percentage owned.
8. It is a business combination of two or more entities with similar business.
a. Vertical combination
b. Identical combination
c. Similar combination
d. Horizontal combination
9. In a business combination, which of the following will occur?
a. All identifiable assets and liabilities are recorded at fair value at the date of acquisition.
b. All identifiable assets and liabilities are recorded at book value at the date of acquisition.
c. Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of
the net assets acquired.
d. None of the above is correct.
10. When firm B merges with firm C to create firm BC, what has occurred?
a. A tender offer.
b. An acquisition of stock.
c. An acquisition of assets.
d. A consolidation

True or False

1. Recognizing and measuring the identifiable assets acquired, the liabilities assumed and the non-
controlling interest in the acquiree at carrying amount. False
2. If a new entity is formed to issue equity interest to effect a business combination, the new entity
formed is necessarily the acquirer. False
3. The acquisition date can never precede the closing date. False
4. The non-controlling interest should be recorded at the fair value of the shares not held by the
acquirer or the proportionate share of the fair value of net identifiable assets acquiree. True
5. Goodwill arising from a business combination is never amortized. True
6. According to PFRS 3, the acquisition date is normally the closing date. True
7. The two important elements in the definition of business combination under PFRS3 are
"business and combination. False
8. PFRS 3 requires the use for the purchase method in accounting for business combination. False
9. The only way to attain control over the net assets of another entity is to purchase the net assets.
False
10. The acquiree entity is liquidated in a statutory merger. True
11. An acquisition of stock occurs when firm B merges with firm C to create firm BC. True
12. Horizontal combination is a business combination of two or more entities with similar business.
True
13. A business combination occurs when a company acquires an equity interest in another entity
and has control over the entity, irrespective of the percentage owned. True
14. In an acquisition-type combination, the appropriate accounting for the excess of fair values of
net assets acquired over the price paid is to recognize as income in the books of the acquirer.
True
15. In a business combination, all identifiable assets and liabilities are recorded at fair value at the
date of acquisition. True

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