MA 315

1ST Quiz

Name: __________________________
Date: ____________
Score: ___________
Multiple Choice. Choose the letter of the correct answer.

1. Business combination are accounted for using the a. True; true c. true; false
acquisition method. This method requires the following b. False; true d. false; false
steps, except;
a. Identifying the acquirer 8. A gain on bargain purchase is
b. Identifying the acquiree a. Recognize in profit or loss in the year of acquisition.
c. Determining the acquisition date b. Amortized in profit or loss over the lower of the legal
d. Recognizing and measuring goodwill life and estimated useful life.
c. Recognized in profit or loss in the year of
2. An acquirer is acquisition only after reassessment of assets
a. The transferor of cash and other resources and acquired and liabilities assumed in the business
assumes liabilities. combination.
b. Entity that issues its equity interests. d. Any of these.
c. Initiator of the combination
d. Any of these. 9. Which of the following assets of an acquiree may not be
included when computing for the goodwill arising from a
3. Which of the following does not defines the acquisition business combination?
date? a. Tools and other equipment
a. This is the date on which acquirer obtains control of b. intangible assets not previously recorded
the acquiree. c. Research and development costs charged
b. The date on which the acquirer legally transfers the as expenses
consideration, acquires the assets and assumes the d. Goodwill
liabilities of the acquiree.
c. This date used to establish the carrying amount of 10. For each business combination, the acquirer measures any
the acquired company. non- controlling interest in the acquire at
d. It is the closing date. a. Fair value
b. The non- controlling interest’s proportionate share of
4. According to PFRS 3, this is the date on which the the acquiree’s identifiable net assets.
acquirer obtains control over the acquiree. c. either a or b
a. Control date c. date of purchase d. neither a nor b
b. Acquisition date d. Valentine’s date
11. In a business combination, how should long-term debt of
5. It is a statutory type of combination which occurs when the acquired company generally be recognized on
two or more companies combine into a single entity which acquisition date?
shall be one of the combining companies. a. Fair value
a. Merger c. stock acquisition b. Amortized cost
b. Consolidation d. mutual combination c. Carrying amount
d. Fair value less costs to sell
6. Statement I. In statutory consolidation, the previous
companies are dissolved and are then replace by the 12. The costs of issuing equity securities in a business
continuing company. combination are
Statement II. In statutory merger, the absorbed company a. expensed
ceases to exist but may continue as a division of a b. treated as direct reduction in equity
surviving company c. included in the initial measurement of the credit to
a. True; true c. true; false share capital account
b. False; true d. false; false d. b and c

7. Statement I. In stock acquisition, only the acquirer 13. A business combination is accounted for properly as an
remains separate legal entities. acquisition. Direct costs of combination, other than
Statement II. Control of another company may be registration and issuance costs of equity securities, should
achieved by acquiring 50% or more interest in the target be:
company’s voting ordinary shares. a. Capitalized as a deferred charge and amortized.
 b. Deducted directly from the retained earnings of the 19. The entry to record the acquisition of Pete is:
combined corporation.
c. Deducted in determining the net income of the 20. On March 18, 2019, Jack purchased all of the identifiable
combined corporation for the period in which the assets and assumed all liabilities of Ralp. On this date, the
costs were incurred. identifiable assets acquired and liabilities assumed have
d. Included in the acquisition cost to be allocated to fair values of P6,400,000 and P3,600,000, respectively.
identifiable assets according to their fair values. Jack incurred the following acquisition related cost:
professional fee, P440,000 and general and administrative
14. PDX Corp. acquired 100% of the outstanding common costs, P80,000. As a consideration for the business
stock of Sea Corp. in an acquisition transaction. The cost combination, Jack issued 8,000 of its own share with par
of the acquisition exceeded the fair value of the value per share of P400 and fair value of P420 to Ralp’s
identifiable assets and assumed liabilities. The general former owners. Cost of registering the shares amounted to
guidelines for assigning amounts to the inventories P180,000. The entry to record the business combination
acquired provide for: includes:
a. Raw materials to be valued at original cost.
b. Work in process to be valued at the estimated selling 21. On May 11, 2019, Like acquired 70% of the equity
prices of finished goods, less both costs to complete interest of Step in exchange for P2,000,000 cash. As of
and costs of disposal. May 11, 2019, net identifiable assets acquired and
c. Finished goods to be valued at replacement cost. liabilities assumed have fair value of P2,800,000 and
d. Inventories to be valued at acquisition-date fair P700,000. Like elects the option to measure non-
values. controlling interest at fair value. An independent
consultant was engaged who determined that the fair value
15. Goodwill may be capitalized of the 30% NCI in Step’s is P420,000. How much is the
a. only when it arises in a business combination. goodwill (gain on bargain purchase)?
b. only when it is created internally. a. P320,000
c. only when it is purchased
d. on any of these cases. 22. The entry to record the acquisition is

This information pertains to next two questions: 23. On January 1, 2015, Varsity Co. acquired all of the
On January 1, 2019, Jeck Co. acquired all of the assets and identifiable net assets of Sunshine Co. by paying
assumed all of the liabilities of Uella Co. As of this date, the P2,000,000. On this date Sunshine Co.’s identifiable
carrying amount and fair values of net assets of Uella Co. are assets and liabilities have fair values of P3,200,000 and
P2,800,000 and P2,400,000 respectively. The fair value of P1,800,000, respectively.
assets includes P40,000 goodwill. On the negotiation for the Varsity agrees to pay an additional amount equal to 10%
business combination, Jeck incurred transaction cost of the 2015 year- end profit that exceeds P800,000.
amounting to P200,000 for legal and other professional fees. Sunshine Co. historically has reported P600,000 to
P800,000 each year. Varsity estimated that the fair value
16. If Jeck issued P3,000,000 promissory note as of the contingent consideration is P20,000. How much is
consideration for the assets and liabilities of Uella, how the goodwill (gain on bargain purchase)?
much is the goodwill (gain on bargain purchase) on the a. P620,000
business combination?
a. P640,000 On January 1, 2021, DIMINUTIVE Co. acquired all of the
assets and assumed all of the liabilities of SMALL, Inc. As of
17. The pertinent entry to record the combination includes: this date, the carrying amounts and fair values of the assets and
liabilities of SMALL acquired by DIMINUTIVE are shown
18. On June 1, 2019, Rick acquired 80% of the equity interest below:
of Pete in exchange for P4,000,000 cash. As of June 1,
2019, Pete‘s identifiable assets and liabilities have fair Carrying Fair
value of P4,800,000 and P1,600,000. Rick elects the Assets amounts values
option to measure non- controlling interest at non- Cash in bank 20,000 20,000
controlling interest’s proportionate share of Pete’s net Receivables 400,000 240,000
identifiable assets. An independent consultant was AFDA (60,000)
engaged who determined that the fair value of the 20% Inventory 1,040,000 700,000
NCI in Pete is P620,000. How much is the goodwill (gain Building – net 2,000,000 2,200,000
on bargain purchase)? Goodwill 200,000 40,000
a. P1,440,000 Total assets 3,600,000 3,200,000
 Liabilities • Buildings and Equipment (net) is undervalued by
Payables 800,000 800,000 P10,000.
• Accounts Payable is overvalued by P2,000
On the negotiation for the business combination, • Bonds Payable is undervalued by P15,000
DIMINUTIVE Co. incurred transaction costs amounting
to ₱200,000 for legal, accounting, and consultancy fees. PLDC Inc. acquired the net assets of GLOBAL Telecom by
issuing 12,000 shares of its common stocks and paying cash
24. If DIMINUTIVE Co. paid ₱2,000,000 cash as amounting to P75,000. In addition, the following costs were
consideration for the assets and liabilities of SMALL, incurred and paid for by PLDC Inc.:
Inc., how much is the goodwill (gain on bargain purchase) • Legal fees, P22,000
on the business combination? • Costs of SEC registration, P15,000
a. (P360,000) • Cost of issuing stock certificates, P20,000
• General administrative costs, P12,500
On January 1, 2021, KNAVE acquired 80% of the equity .
interests of RASCAL, Inc. in exchange for cash. Because the 26. The stock market price of the PLDC Inc. and GLOBAL
former owners of RASCAL needed to dispose of their Telecom are P13.50 and P7.20, respectively at the time of
investments in RASCAL by a specified date, they did not have acquisition. Determine the goodwill or gain on bargain
sufficient time to market RASCAL to multiple potential purchase.
buyers. 27. How much share premium arises from the business
As January 1, 2021, RASCAL’s identifiable assets and combination?
liabilities have fair values of ₱2,400,000 and ₱800,000, 28. How much is the fair value of identifiable net assets
respectively. acquired (FVINA)?

25. KNAVE Co. elects the option to measure the non- 29. The stock market price of the PLDC Inc. and GLOBAL
controlling interest at the non-controlling interest’s Telecom are P10.80 and P6.60, respectively at the time of
proportionate share of RASCAL, Inc.’s net identifiable acquisition. Determine the goodwill or gain on bargain
assets purchase.
If KNAVE Co. paid ₱2,000,000 cash as consideration for 30. How much share premium arises from the business
the 80% interest in RASCAL, Inc., how much is the value combination?
of NCI on the business combination?
a. P320,000

The following Statement of Financial Position were prepared

for PLDC Inc. and GLOBAL Telecom on January 1, 2020 just
before they entered into business combination:
GLOBAL Telecom
Book Value
Cash 30,000
Accounts receivable 25,000
Allowance for doubtful accounts (5,000)
Inventory 100,000
Buildings and Equipment 300,000
Accumulated Depreciation (150,000)
Accounts payable 40,000
Bonds payable 60,000
Ordinary Share
P10 par value
P5 par value 100,000
Share premium 20,000
Retained earnings 80,000

Additional Information:
The following valuation of assets and liabilities were
determined:
• Accounts receivable (net) is overvalued by P2,000.
• Inventory is undervalued by P20,000.