UNIVERSITY OF PERPETUAL HELP SYSTEM LAGUNA - ISABELA CAMPUS

Cauayan City, Isabela

College of Business and Accountancy

Accounting for Business Combination

Prelim Exam

NAME: CODE:

THEORIES
Instruction: Choose the best answer for each question. Write your answers in a separate sheet of
paper.

1. Under IAS 27, which of the following statements concerning the determination of the acquirer
in a business combination is correct?
a. The acquirer in merger is the entity that absorbed the other entity.
b. The acquirers in consolidation are the entities being consolidated.
c. The acquirer in acquisition of stocks is the subsidiary corporation.
d. The acquirer is the entity that has significant influence in the other entity.

2. Under IFRS 3, in a business combination through acquisition of less than 100% of

common stocks of the subsidiary, the noncontrolling interest in the net assets of the
acquiree shall be measured initially at
a. fair value
b. the present ownership instruments' proportionate share in the recognised amounts of
the acquiree's identifiable net assets
c. Either A or B
d. Neither A nor B

3. Under IFRS 3, what is the proper treatment of contingent liability assumed in a

business combination?
a. It shall be ignored because it is a possible obligation that arises from past events and
whose existence will be confirmed only by the occurrence or non-occurrence of one
or more uncertain future events not wholly within the control of the entity.
b. It shall be disclosed only because it is not probable that an outflow of
resources embodying economic benefits will be required to settle the
obligation.
c. It shall be accrued or recognized as of acquisition date if it is a a present obligation that
arises from past events and its fair value can be measured reliably even it is not
probable that an outflow of resources embodying economic benefits will be required to
settle the obligation.
d. None of the above.

4. Under IFRS 3, what is the proper measurement of the consideration transferred in a

business combination?
a. Acquisition-date Fair value
b. Acquisition-date Book value
c. Acquisition-date Historical cost
d. Acquisition-date Present value of cash flows

5. Under IFRS 3, what is the treatment to the excess of the aggregate of (1) the consideration
transferred measured in accordance with this IFRS, which generally requires acquisition-date fair
value; (2) the amount of any non-controlling interest in the acquiree measured in accordance
with IFRS 3; and (3) in a business combination achieved in stages, the acquisition-date fair value
of the acquirer’s previously held equity interest in the acquiree over the fair value of the net of the
acquisition-date amounts of the identifiable assets acquired and the liabilities assumed?
a. Goodwill from business combination to be classified as non-current asset not subject
to amortization
b. Gain on bargain purchase to be presented as part of profit or loss
c. Loss on bargain purchase to be presented as part of other comprehensive income
d. Credit to retained earnings
 6. Under IFRS 3, what is the treatment to the excess of the fair value of the net of the acquisition-
date amounts of the identifiable assets acquired and the liabilities assumed over the of the
aggregate of (1) the consideration transferred measured in accordance with this IFRS, which
generally requires acquisition-date fair value; (2) the amount of any non-controlling interest in
the acquiree measured in accordance with IFRS 3; and (3) in a business combination achieved in
stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the
acquiree?
a. Goodwill from business combination to be classified as non-current asset not subject
to amortization but subject to annual impairment test
b. Gain on bargain purchase to be presented as part of profit or loss
c. Loss on bargain purchase to be presented as part of other comprehensive income
d. Credit to retained earnings

7. Under IFRS 3, what is the proper treatment to acquisition-related costs also known as direct
cost of business combination?
a. Expense as incurred presented as part of profit or loss
b. Expense as incurred presented as part of other comprehensive income
c. Part of consideration transferred in business combination
d. Debited or charged to direct cost of business combination

8. Under IFRS 3, in a business combination achieved in stages, the acquirer shall remeasure its
previously held equity interest in the acquiree at its acquisition-date fair value and recognize
the resulting gain or loss, if any, in
a. Profit or loss
b. Other comprehensive income
c. Share premium
d. Retained earnings

9. Under IFRS 3, what is the proper treatment of measurement period adjustment?

a. It shall be adjusted to profit or loss.
b. It shall be adjusted to other comprehensive income.
c. It shall be retroactively adjusted to goodwill or gain on bargain purchase.
d. It shall be retroactively adjusted to retained earnings.

10. Under IFRS 3, which of the following is a measurement period adjustment that may
be retroactively adjusted to goodwill or gain on bargain purchase?
a. Additional assets or liabilities if new information is obtained about facts and
circumstances that existed as of the acquisition date and, if known, would have
resulted in the recognition of those assets and liabilities as of that date.
b. Changes resulting from events after the acquisition date, such as meeting an
earnings target, reaching a specified share price or reaching a milestone on a
research and development project, are not measurement period adjustments.
c. Changes in the fair market value of the financial asset at fair value issued as part of
the consideration transferred.
d. Changes in the amortized cost of the financial asset at amortized cost issued as part of
the consideration transferred.

PROBLEM SOLVING
Instruction: Solve and answer the following questions and write your solutions and answers in a
separate sheet of paper. Make your solution neat as you are. If answer is not found among the
choices, write the correct answer.

Problem 1

Entity A acquired the net assets of Entity B by issuing 10,000 of its ordinary shares with par value of P10
and bonds payable with face value of P500,000. The bonds are classified as financial liability at fair value
through profit or loss.

At the time of acquisition, the ordinary shares are publicly quoted at P20 per share. On the other hand, the
bonds payable are trading at 110.