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Advac Quiz 1 - nothing

BS Accountancy (San Beda University)

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1
Business combinations are accomplished either through a direct
acquisition of assets and liabilities by a surviving corporation or by
stock investment in one or more companies. A parent-subsidiary
relationship arises from a
(1/1 Point)
Statutory Consolidation
Statutory Merger
Acquisition of net assets
Purchase of controlling interest over the investee
Correct answers: Purchase of controlling interest over the investee
2
Which of the following accounting treatments for costs related to
business combination is incorrect?
(1/1 Point)
The costs related to the organization of the newly formed corporation also known as
pre-incorporation costs shall be capitalized as goodwill or deduction from gain on
bargain purchase.
The costs related to issuance of stocks or equity securities shall be deducted/debited
from any share premium from the issue and any excess is charged to "share issuance
cost" reported as contract-equity account against either (1) share premium from other
share issuances or (2) retained earnings.
The costs related to issuance of financial liability at fair value through profit or loss
shall recognized as expense while those related to issuance of financial liability at
amortized cost shall be recognized as deduction from the book value of financial liability
or treated as discount on financial liability to be amortized using effective interest
method.
Acquisition related costs such as finder's fees; advisory, legal, accounting, valuation
and other professional and consulting fees; and general administrative costs, including
the costs of maintaining an internal acquisitions department shall be recognized as
expense in the Profit/Loss in the periods in which the costs are incurred
Correct answers: The costs related to the organization of the newly formed
corporation also known as pre-incorporation costs shall be capitalized as
goodwill or deduction from gain on bargain purchase.
3
On October 1, 2020, SG is interested in the business of Popsters
Company. Negotiations have been done and on January 3, 2021, an
agreement was reached and the net assets with a fair value of
P6,000,000 were exchanged on this date for the following: -100,000
shares in SG Company, par P10, market value, P25 -P4,000,000 cash,
half to be paid on date of exchange and the other payable in semi-
annual installments of P500,000 beginning June 30, 2021. (assume a
market rate of interest of 14% and round off present value factor to
three decimal places) Non-cash assets, book value of P200,000, fair
market value of P240,000 In issuing the equity instruments, SG

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Company incurred the following: -underwriting cots and brokerage

fees, P20,000 -transaction costs such as stamp duties and professional
advisers fee, P10,000. -Legal and accounting fees related with the
business combination, P30,000. Determine the amount of Goodwill.
(0/1 Point)

Correct answers: 433,500

4
SG paid finder's fees of P40,000, legal fees of P13,000, audit fees
related to the stock issuance of P10,000, stock registration fees of
P5,000, and stock listing application fees of P4,000. Based on the
preceding information, under the acquisition method, what amount
relating to the business combination would be expensed?
(0/1 Point)

Correct answers: 57,000

5
Popsters Company reports net assets of P300,000 at book value with
estimated market value at P380,000. SG Corporation buys 80% of
Popsters for P300,000. Included in the consideration transferred is a
P10,000 control premium. How much is the goodwill or (gain on
bargain purchase) on the date of acquisition?
(1/1 Point)

Correct Answer: (4,000)

6
A contingent (consideration) liability assumed in a business
combination, under PFRS 3 is:
(1/1 Point)
Not recognize until the probability is virtually certain.
Recognized even if the outcome is improbable as long as there is a present
obligation that can be measured reliably.
Not accounted by the acquirer if the outcome is not highly probable.
Recognized if it will meet the criteria on recognition and measurement set by PAS 37:
Provisions, Contingent Liabilities and Contingent Assets
Correct answers: Recognized even if the outcome is improbable as long as
there is a present obligation that can be measured reliably.
7
In reference to PFRS 3, a business has three elements, which of the
following is NOT a business element?
(1/1 Point)
Transaction
Output

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Process
Input
Correct answers: Transaction
8
Some changes in the fair value of contingent consideration that the
acquirer recognizes after the acquisition date may be the result of
additional information that the acquirer obtained after that date about
facts and circumstances that existed at the acquisition date. These are
called measurement period adjustments that can be adjusted during
the measurement period. Which of the following transactions is
considered as a measurement period adjustment that the acquirer
shall retrospectively adjust to goodwill/ (gain on bargain purchase)
during the measurement period which shall not exceed one year from
the acquisition date?
(0/1 Point)
Increase in the fair value of the financial liability at fair value through profit or loss
issued as consideration for business combination due to movement of prices in the
exchange market.
Change in the carrying amount of the financial liability at amortized cost issued as
consideration for business combination due to amortization of the premium/(discount)
on financial liability.
Changes in the provisional amount of contingent liability or contingent consideration
as a result of new information obtained about the facts and circumstances that existed
as of the acquisition date and, if known, would have affected the measurement of the
amounts recognized as of that date.
Changes in the value contingent consideration occurring within one year from the
acquisition date as a result of events occurring after the acquisition date such as
meeting an earnings target, a specified share price or reaching milestone on a research
and development project.
Your answer to question 8 is wrong.
Correct answers: Changes in the provisional amount of contingent liability or
contingent consideration as a result of new information obtained about the
facts and circumstances that existed as of the acquisition date and, if known,
would have affected the measurement of the amounts recognized as of that
date.
9
A business combination may be legally structured as a merger, a
consolidation, an investment in stock, or a direct acquisition of assets.
Which of the following describes a business combination that is legally
structured as a merger?
(1/1 Point)
A parent-subsidiary relationship is established.
An investor-investee relationship is established.
The surviving company is neither of the two combining companies.
The surviving company is one of the two combining entities.

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Correct answers: The surviving company is one of the two combining entities.
10
How much was the total consideration transferred by SG?
(0/1 Point)

Correct answers: 124,500

11
Which of the following is incorrect concerning an acquirer?
(0/1 Point)
An acquirer shall be identified for all business combinations.
Because the acquisition method views a business combination from the acquirer’s
perspective, it is assumed that one of the parties to the transaction can be identified as
the acquirer.
Control is the power to participate in the financial and operating policies of an entity
or business as to obtain benefits from its activities.
The acquirer is the combining entity that obtains control of the other combining
entities of businesses.
Correct answers: Control is the power to participate in the financial and
operating policies of an entity or business as to obtain benefits from its
activities.
12
On May 1, 2020, SG acquired the net assets of Popsters for a
consideration transferred of P32,000,000. At the acquisition date, the
carrying amount of Popsters' net assets was P20,000,000 and a
temporary appraisal of P28,000,000 was attributed to the net assets.
At December 31, 2020, a provisional fair value of P26,000,000 was
attributed to the net assets. An additional valuation received on March
31, 2021 increased this provisional fair value by P2,000,000 and on
June 1, 2021 this fair value was finalized by P4,000,000 form the last
valuation date. What amount should the surviving company present for
goodwill in its separate statement of financial position at December 31,
2021?

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(0/1 Point)

Correct answers: 4,000,000

13
A type of business combination wherein an investor, having an existing
investment in the investee, acquires additional interest in order to
obtain control over the investee.
(0/1 Point)
Business combination achieved by contract alone
Business combination achieved in stages
Step by step acquisition
Business combination achieved in exchange of shares
Correct answers: Business combination achieved in stages
14
Which is incorrect concerning the date of exchange in a business
combination?
(0/1 Point)
The date of exchange is the date on which a substantive agreement between the
combining entities is reached and in the case of publicly listed entities, announced to
the public.
When a business combination is achieved in more than one exchange transaction,
the date of exchange is the date that each individual investment is recognized in the
financial statement of the acquirer.
The acquisition date is the date on which the acquirer effectively obtains control of
the acquiree.
When a business combination is achieved through a single exchange transaction, the
date of exchange is the acquisition date.
Your answer to question 14 is wrong.
Correct answers: When a business combination is achieved in more than one
exchange transaction, the date of exchange is the date that each individual
investment is recognized in the financial statement of the acquirer.
15
In which of the following situations should the provision of PFRS 3 be
applied?
(1/1 Point)
A has 5% equity interest in B, Ltd.
A has an interest of 20% in equity shares of Entity D.
A and B Bank has a holding of 50% each in the equity of C Pharmaceuticals, Ltd.
A Insurance acquiring four wholly-owned subsidiaries.
Correct answers: A Insurance acquiring four wholly-owned subsidiaries.
16
On January 1, 2021, SG Company acquired 40% interest in Popsters
Company for P4,800,000. SG already had 25% interest which had been
acquired for P1,600,000. The fair value of the identifiable net assets of

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Popsters Co. was P8,400,000. How much is the goodwill recognized by

SG as a result of business combination?
(0/1 Point)

Correct answers: 3,600,000

17
On January 7, 2021, SG Co., acquired a 35% interest in Popsters Co.,
for P3,653,125. SG already held a 20% interest which had been
acquired for P1,600,000 which was valued at P1,800,000 at January 7,
2021. The fair value of the identifiable net assets of Popsters was
P8,400,000. How much is the goodwill to be recognized as a result of
the business combination, assuming that NCI is measured at fair
value?
(1/1 Point)

Correct Answer 1,750,000

18
The goodwill reported at acquisition date is:
(0/1 Point)

Correct answers: 800,000

19
On January 1, 2018, SG acquired 30,000 out of 100,000 outstanding
ordinary shares of Popsters for P90,000 or 30% interest. For the six
months ended June 30, 2018, Popsters reported net income of P40,000.
On July 1, 2018, SG acquired additional 60,000 ordinary shares of
Popsters or 60% interest at a price of P4 per share or total cost of
P240,000. Sarah paid P20,000 acquisition related costs and P10,000
indirect costs of business combination. The acquisition piece per share
of the additional shares clearly reflected the fair value of the existing
interest of SG in Popsters. It is the policy of SG to initially measure the
noncontrolling interest proportionate in net assets of the acquiree at

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fair value. The fair value of the noncontrolling interest in net assets of
the acquiree is reliably measured at P50,000. At the acquisition date,
the net assets of Popsters were reported at P400,000. An asset of
Popsters was overvalued by P50,000 while one liability was overvalued
by P30,000. What is the gain on remeasurement of the existing
Investment in Entity B as a result of step acquisition?
(0/1 Point)

Correct answers: 18,000

20
What is the goodwill or gain on bargain purchase as a result of the
business combination?

(0/1 Point)

Correct answers: 18,000

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