Multiple Choice. Choose the letter of the correct
answer.
1. Business combination are accounted for using the
acquisition method. This method requires the
following steps, except;
a. Identifying the acquirer
b. Identifying the acquiree
c. Determining the acquisition date
d. Recognizing and measuring goodwill
2. Which of the following does not defines the
acquisition date?
a. This is the date on which acquirer obtains
control of the acquiree.
b. The date on which the acquirer legally
transfers the consideration, acquires the
assets and assumes the liabilities of the
acquiree.
c. This date used to establish the carrying
amount of the acquired company.
d. It is the closing date.
3. Statement I. In statutory consolidation, the
previous companies are dissolved and are then
replace by the continuing company.
Statement II. In statutory merger, the absorbed
company ceases to exist but may continue as a
division of a surviving company
a. True; true c. true; false
b. False; true d. false; false
4. Statement I. In stock acquisition, only the acquirer
remain separate legal entities.
Statement II. Control of another company may be
achieved by acquiring 50% or more interest in the
target company’s voting ordinary shares.
a. True; true c. true; false
b. False; true d. false; false
5. A gain on bargain purchase is
a. Recognize in profit or loss in the year of
acquisition.
b. Amortized in profit or loss over the lower of
the legal life and estimated useful life.
c. Recognized in profit or loss in the year of
acquisition only after reassessment of assets
acquired and liabilities assumed in the
business combination.
d. Any of these.
6. An acquirer is
a. The transferor of cash and other resources
and assumes liabilities.
b. Entity that issues its equity interests.
c. Initiator of the combination
d. Any of these.
7. For each business combination, the acquirer
measures any non- controlling interest in the
acquire at
a. Fair value
b. The non- controlling interest’s proportionate
share of the acquiree’s identifiable net assets.
c. either a or b
d. neither a nor b
8. Potential form of considerations include:
a. Cash or other asset
b. Contingent consideration
c. Ordinary or preference equity instruments
d. All of the above
These information pertains to 9 and 10
On January 1, 2019, Jeck Co. acquired all of the
assets and assumed all of the liabilities of Uella Co.
As of this date, the carrying amount and fair
values of net assets of Uella Co. are P2,800,000
and P2,400,000 respectively. The fair value of
assets includes P40,000 goodwill.
On the negotiation for the business combination,
Jeck incurred transaction cost amounting to
P200,000 for legal and other professional fees.
9. If Jeck issued P3,000,000 promissory note as
consideration for the assets and liabilities of Uella,
how much is the goodwill (gain on bargain
purchase) on the business combination?
a. P640,000 c. P680,000
b. P40,000 d. P260,000
10. The pertinent entry to record the combination
includes:
a. Debit goodwill, P40,000
b. Credit professional expense, P200,000
c. Credit goodwill P640,000
d. Credit notes payable, P3,000,000
11. On June 1, 2019, Rick acquired 80% of the equity
interest of Pete in exchange for P4,000,000 cash.
As of June 1, 2019, Pete‘s identifiable assets and
liabilities have fair value of P4,800,000 and
P1,600,000. Rick elects the option to measure
non- controlling interest at non- controlling
interest’s proportionate share of Pete’s net
identifiable assets. An independent consultant
was engaged who determined that the fair value
of the 20% NCI in Pete is P620,000. How much is
the goodwill (gain on bargain purchase)?
 a. P1,440,000 c. P2,080,000
b. P1,600,000 d. P2,440,000
12. The entry to record the consolidation journal
entry includes:
a. Debit Goodwill, P2,440,000
b. Credit Cash, P4,620,000
c. Credit Non- controlling Interest in Pete,
P640,000
d. Debit Liabilities assumed, P400,000
13. On March 18, 2019, Jack purchased all of the
identifiable assets and assumed all liabilities of
Ralp. On this date, the identifiable assets acquired
and liabilities assumed have fair values of
P6,400,000 and P3,600,000, respectively. Jack
incurred the following acquisition related cost:
professional fee, P440,000 and general and
administrative costs, P80,000. As a consideration
for the business combination, Jack issued 8,000 of
its own share with par value per share of P400 and
fair value of P420 to Ralp’s former owners. Cost of
registering the shares amounted to P180,000. The
entry to record the business combination
includes:
a. Credit Goodwill, P560,000
b. Credit Share Premium, P3,200,000
c. Credit Share capital, P3,000,000
d. Credit Liabilities, P3,600,000
14. The entry to record the acquisition- related costs
includes the following, except:
a. Debit Professional fee, P440,000
b. Debit Retained Earnings, P180,000
c. Credit Cash, P700,00
d. Debit Gen and Admin Expense, P80,000
15. According to PFRS 3, this is the date on which the
acquirer obtains control over the acquiree.
a. Control date c. date of purchase
b. Acquisition date d. Valentine’s date
16. It is a statutory type of combination which occurs
when two or more companies combine into a
single entity which shall be one of the combining
companies.
a. Merger c. stock acquisition
b. Consolidation d. mutual combination
17. On May 11, 2019, Like acquired 70% of the equity
interest of Step in exchange for P2,000,000 cash.
As of May 11, 2019, net identifiable assets
acquired and liabilities assumed have fair value of
P2,800,000 and P700,000. Like elects the option
to measure non- controlling interest at fair value.
An independent consultant was engaged who
determined that the fair value of the 30% NCI in
Step’s is P420,000. How much is the goodwill (gain
on bargain purchase)?
a. P757,143 c. (P100,000)
b. P320,000 d. P530,000
18. The consolidation entry to consolidate the
Financial Statement includes:
a. Debit Goodwill, P857,143
b. Credit Cash, P2,420,000
c. Credit Non- controlling Interest in Step,
P420,000
d. Debit Liabilities assumed, P2,100,000
19. Which of the following assets of an acquiree may
not be included when computing for the goodwill
arising from a business combination?
a. Tools and other equipment
b. intangible assets not previously recorded
c. Research and development costs charged
as expenses
d. Goodwill
20. On January 1, 2015, Varsity Co. acquired all of the
identifiable net assets of Sunshine Co. by paying
P2,000,000. On this date Sunshine Co.’s
identifiable assets and liabilities have fair values
of P3,200,000 and P1,800,000, respectively.
Varsity agrees to pay an additional amount equal
to 10% of the 2015 year- end profit that exceeds
P800,000. Sunshine Co. historically has reported
P600,000 to P800,000 each year. Varsity
estimated that the fair value of the contingent
consideration is P20,000. How much is the
goodwill (gain on bargain purchase)?
a. P590,000 c. P600,000
b. P620,000 d. P490,000