Long Quiz no.

1. The acquire is the entity that obtains control after the business combination.- False
2. If the interest acquired is 80%, the non-controlling interest percentage is 20%.- True
3. If the consideration transferred in a business combination is deferred, the
consideration may be measured at present value.-True
4. According to PFRS 3 Business Combinations, a “gain on a bargain purchase” (or
‘negative goodwill) is recognized as an allocated deduction to the net identifiable
assets acquired in the year of business combination.- True
5. Under PFRS 3 Business Combinations, business combinations are accounted for using
the purchase method.- False
6. An identifiable asset that is unrecorded by the acquiree may nevertheless be
recognized by the acquirer in a business combination. – True
7. A transaction that is arranged primarily for the benefit of the acquirer or the combined
entity rather than primarily for the benefit of the acquiree or its former owners before

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the combination is likely to be a separate transaction. Thus, the portion of the

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transaction price shall be excluded from the consideration transferred when applying

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the acquisition method.- True
8. The acquisition method shall be applied only to business combinations wherein the

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acquirer obtains control of the acquire by transferring consideration to the latter.-
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False
9. Prior to business combination, the acquiree and acquire may have pre-existing
relationship. If, due to the business combination, the pre-existing relationship is
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settled, the acquirer shall recognize a settlement gain or loss.- True

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10. A business combination achieved in stages occurs when an investors acquires

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additional shares from an investee which it had previously held equity interest and the
additional shares purchased results to the investor obtaining control over the
investee.- True
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11. The acquirer may record an increase in its share premium under business
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combinations accomplished through a mere exchange of equity interests between the

acquirer and the acquire (or its former owners) -True
12. For purposes of applying the ‘acquisition method’ of PFRS 3 Business Combination,
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the consideration transferred shall include only those that are transferred in a
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transaction that is arranged primarily for the benefit of the acquirer or the combined
entity.- False
13. In conventional acquisition, consideration transferred is measured at its market
value (of the acquirer).- True
14. In reverse acquisition, the entity whose equity interests are acquired is the
acquiree. – False
15. Goodwill that arises from a business combination is recognized as an asset. Those
arising from other sources are also recognized.- False
16. Members of mutual entities are both customers and suppliers.- False
17. In capitalization of average earnings, the excess earnings are divided by a pre-
determined capitalization rate to determine goodwill. – False

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 18. Goodwill shall be allocated to each of the acquirer’s cash generating unit only by
the end of the year of business combination.- False
19. In PFRS 3, goodwill is an entity asset and should be recognized in full as at date of
acquisition. –True
20. A parent need not present consolidated financial statements if its debt and equity
instruments are not traded in a public market there are no other requirements.- False
21. Gain on acquisition is the reverse of goodwill. –True
22. In the elimination entries, common stock, APIC, and Retained earnings accounts of
the acquired company are credited.- False
23. Generally, consolidated statements are to be proposed if one company owns 50%
or more of the voting of another company, thereby having controlling interest.- False
24. In the new control model, an investor controls an investee if and only if the
investor has power over the investee and rights to variable returns from its
involvement with the investee. –False
25. The costs of issuing equity securities in a business combination are

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a. Included in the initial measurement of the credit to share capital account.

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b. B and c

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c. Treated as directly reduction in equity

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d. Expensed
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26. According to PFRS 3, it is a transaction or other event in which an acquirer obtains
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control of one or more businesses.
a. Business Combination
b. Business amalgation
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c. All of these
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d. Business alliance
27. This distinguishes a business combination from other types of investment
transactions.
28. The cost of issuing debt securities in a business combination are
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a. Expensed
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b.Accounted for like a “discount” on liability

c. B and C
d. Include in the initial measurement of the debt securities issued
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29. Example of circumstances where the acquirer obtains control without transferring
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consideration
a. The acquirer and acquire agree to combine their business by contract alone
b. Minority veto rights lapse that previously kept the acquire in which the acquirer held
the majority voting rights
c. The acquiree repurchases a sufficient number of its own shares from other investors so
that acquirer will be able to obtain control.
d.All of the above
30. In a business combination achieved in stages, the acquirer remeasures its
previously held equity interest in the acquiree at the acquisition-date fair value. The
gain or loss on remeasurement in recognized in
a. A and B
b. Profit or Loss
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 c. Other comprehensive income
d. Directly in equity
31. Which of the following statements is true about a transaction whereby an entity
acquires control over another entity but no consideration is transferred?
a. A and C
b. The transaction is not accounted for as a business combination
c. No goodwill shall be recognized from the transaction
d.Goodwill may still arise from the transaction
32. In computing goodwill under business combination achieved in stages, total
consideration is equal to
a. Previously held equity interest in the acquire
b.All of the above
c. Cash transferred
d. Non- controlling interest in the acquiree
33. A majority-owned subsidiary that is in legal reorganization should normally be

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accounted for using

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a. The market value method

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b. The equity method

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c. Consolidated financial statements
d.The cost method rs e
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34. In a reverse acquisition, the entity that issues securities is identified as the <List
A> while the entity whose equity interest are acquired is the <ListB>.
a. Accounting acquirer; accounting acquire
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b.Accounting acquire; accounting acquirer

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c. Legal acquire, accounting acquire

d.Legal acquirer; legal acquiree
35. Goodwill arising from business combinations are (usefull PFRSs)
a. Not amortized but tested for impairment at least annually in accordance with PFRS 3
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b.Not amortized but tested for impairment at least annually in accordance

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with PAS 36
c. Amortized over a period not longer than 10 years
d. Amortized over the estimated life or 10 years, whichever is shorter
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36. When a company purchases another company that has existing goodwill and the
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transaction is accounted for as a stock acquisition, the goodwill should be treated in

the following manner.
a. Goodwill is recorded prior to recording fixed assets.
b.Goodwill is not recorded until all assets are stated at full fairs value.
c. Goodwill is treated consistent with other tangible assets.
d. Goodwill on the books of an acquired company should be disregarded.
37. Profit or loss and comprehensive income in the consolidated financial statements.
a. Need not be attributed to the owners of the parent and NCI
b.Shall be attributed to the owners of the parent and NCI
c. Pertain to the owners of the parent
d. Pertain to the owners of the parent, rather the group
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 38. Non- controlling interest shall be presented in the consolidated statement of
financial position
a. As a mezzanine item between liabilities and equity
b. Any of these as a matter of accounting policy choice
c. Within equity, not distinguished from the entity of the owners of the parent
d.Within equity, separately from the equity of the owners of the parent
39. According to PFRS 10, when is a parent exempted from presenting consolidated
financial statements?
a. The parent is neither a listed entity nor in the process of enlisting
b.All of the above
c. The parent’s ultimate or intermediate parent produces consolidated general purpose
financial statements that comply with PFRSs.
d. The parent is of itself a subsidiary and all of its owners do not object to, the parent, not
presenting consolidated financial statements.
40. On September 1, 1990, Phillips, Inc. issued common stock in exchange for 20% of

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Sago, Inc.’s outstanding common stock. On July 1, 1992, Phillips issued common stock

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for an additional 75% of Sago’s outstanding common stock. Sago continues in

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existence as Phillips’ subsidiary. According to PFRS 10 Consolidated Financial

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Statements, how much of Sago’s 1992 net income should be included in the December
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31, 1992 consolidated statement of profit or loss?
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a. All of Sago’s net income from July 1 to December 31
b.20% of Sago’s net income to June 30 and 95% of Sago’s net income from
July 1 to December 31
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c. 95% of Sago’s net income

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41. On September 30, 20x1, ABC Co. acquired all of the identifiable assets and
assumed all of the liabilities of XYZ, Inc. By paying cash of P1,000,000. On this date,
the identifiable assets acquired and liabilities assumed have fair values of P1,600,000
and P900,000, respectively.
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ABC engaged an independent valuer to appraise a building acquired from XYZ. However,
the valuation report was not received by the time ABC authorized for issue its financial
statements for the year ended December 31, 20x1. As such the building was assigned
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a provisional amount of P700,000. Also, the building was tentatively assigned an

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estimate useful life of 10 years from acquisition date. ABC uses the straight line
method of depreciation and recognized three months depreciation on the building in
20x1.

On July 1, 20x2, ABC finally received the valuation report from the independent valuer
which shows that the fair value of the building on September 30, 20x1 is P500,000 and
the remaining useful from that date is 5 years.

The consideration transferred is

a. 700,000
b.1,000,000
c. 500,000
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 d. 1,200,000
42. ABC Co. owns 36,000 shares representing 40% ownership interest in XYZ, Inc.’s
90,000 outstanding ordinary shares. ABC accounts for the investment under the equity
method.

On January 1, 20x1, XYZ reacquired 30,000 of its own shares from other investors so that
ABC shall obtain control over XYZ. The following were determined as of acquisition
date:
 The previously held 40% interest has a fair value of P180,000
 XYZ’s net identifiable assets have a fair value of P1,000,000
 ABC elected to measure non-controlling interest at the non-controlling interest’s
proportionate share of XYZ’s net identifiable assets

The amount of goodwill is (bargain purchase)

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a. (550,000)

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b. (400,000)

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c. zero

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d. P100,000

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43. On September 30, 20x1, ABC Co. acquired all of the identifiable assets and
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assumed all of the liabilities of XYZ, Inc. By paying cash of P1,000,000. On this date,
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the identifiable assets acquired and liabilities assumed have fair values of P1,600,000
and P900,000, respectively.
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ABC engaged an independent valuer to appraise a building acquired from XYZ. However,
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the valuation report was not received by the time ABC authorized for issue its financial
statements for the year ended December 31, 20x1. As such the building was assigned
a provisional amount of P700,000. Also, the building was tentatively assigned an
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estimate useful life of 10 years from acquisition date. ABC uses the straight line
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method of depreciation and recognized three months depreciation on the building in

20x1.
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On July 1, 20x2, ABC finally received the valuation report from the independent valuer
which shows that the fair value of the building on September 30, 20x1 is P500,000 and
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the remaining useful from that date is 5 years.

The adjusted goodwill is

a. P500,000
b. P300,000
c. P200,000
d. 150,000
44. ABC Co. owns 36,000 shares representing 40% ownership interest in XYZ, Inc.’s
90,000 outstanding ordinary shares. ABC accounts for the investment under the equity
method.

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 On January 1, 20x1, XYZ reacquired 30,000 of its own shares from other investors so that
ABC shall obtain control over XYZ. The following were determined as of acquisition
date:
 The previously held 40% interest has a fair value of P180,000
 XYZ’s net identifiable assets have a fair value of P1,000,000
 ABC elected to measure non-controlling interest at the non-controlling interest’s
proportionate share of XYZ’s net identifiable assets

The consideration transferred is

a. P600,000
b. P300,000
c. P450,000
d. P1,000,000
45. On September 30, 20x1, ABC Co. acquired all of the identifiable assets and
assumed all of the liabilities of XYZ, Inc. By paying cash of P1,000,000. On this date,

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the identifiable assets acquired and liabilities assumed have fair values of P1,600,000

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and P900,000, respectively.

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ABC engaged an independent valuer to appraise a building acquired from XYZ. However,
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the valuation report was not received by the time ABC authorized for issue its financial
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statements for the year ended December 31, 20x1. As such the building was assigned
a provisional amount of P700,000. Also, the building was tentatively assigned an
estimate useful life of 10 years from acquisition date. ABC uses the straight line
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method of depreciation and recognized three months depreciation on the building in

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20x1.

On July 1, 20x2, ABC finally received the valuation report from the independent valuer
which shows that the fair value of the building on September 30, 20x1 is P500,000 and
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the remaining useful from that date is 5 years.

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The amount of goodwill recognized on September 31, 20x1 is

a. P100,000
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b. P700,000
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c. P500,000
d.P300,000
46. Tree Co. acquired all the assets and assumed all the liabilities of Plant Co. for
P2,000,000. On acquisition date, Plants’ net identifiable assets have carrying amount
and fair value of P2,800,000 and P1,600,000, respectively.

How much is recognized by Tree Co. on the business combination?

a. Gain on bargain purchase of P800,000
b. Goodwill of P800,000
c. Goodwill of P400,000
d. Gain on bargain purchase of P400,000
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 47. During 20x8, Poppy Inc. acquired 100% of Seed Inc. by issuing 250,000 shares of
its common stock. The acquisition was announced on March r31, 21x8, when Poppy’s
common stock was selling for P45 per share and finalized on October 15, 20x8, when
the market price of Poppy’s common stock was P50 per share. On October 15, 20x8,
Seed’s net asset had a book value of P10,750,000. Book value equalled fair value for
all recognized assets and liabilities, except land, which had a fair value P500,000
higher than book value. Seed also had unpatented technology with a fair value of
P225,000 and in-process research and development with a fair value of P 365,000.
What is the goodwill to be reported on Poppy’s Inc.’s December 31, 20x8 balance
sheet.
a.P1,750,000
b.P1,250,000
c. P660,000
d. P500,000
48. On September 29, 1995, Wall Co. paid P860,000 for all the issued and outstanding

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common stock of Hart Corp. On that date, the carrying amounts of Hart’s recorded

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assets and liabilities were P800,000 and P180,000, respectively. Harts recorded assets

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and liabilities had fair values of P840,000 and P140,000, respectively. In Wall’s

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September 30,1995, balance sheet, what amount should be reported as goodwill?
a. P160,000 rs e
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b. P180,000
c. P20,000
d. P240,000
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49. Plata Corporation paid P100,000 cash for the net assets of Oro Company, which
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consisted of the following:

Book Value Fair Value
Current Assets P20,000 P28,000
Property, plant and equipment P80,000 P110,000
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Liabilities assumed P20,000 P18,000

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The property and equipment acquired in this business combination should be recorded
at:
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a. P110,000
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b. P91,666
c. P100,000
d. P90,000
50. The net assets of Acquired Company have a book value of P150,000 and a fair
value of P180,000. Acquiring Company paid P250,000 cash for all the net assets of
Acquiring Company also paid P50,000 to an investment house as finder’s fee. At what
amount should goodwill be recorded on Acquiring Company’s books?
a. P100,000
b. P150,000
c. P120,000
d. P70,000

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