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THEORI ES
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o. One entity continues to exist

b. One entity ceases to exist
c. The name of the new entity is not the same as either of the entities
d. . All 01 the abov~ ore true statements with regard to a statutory merger
74. Wh,cbh' oft· th~ following is not true with regard to the statutory consoHdotion form of business
com ,na Ionv
o. A new corporation must be formed
b. Control of the net assetsof the combining entitiesmust be acquired by the new entity
c. The net as~~tsof th_~ combining entitiesmust be acquired with assets of the new corporation
d. _The combining ~ntItIes both cease to exist after the combination
75. Following_the completion of a business combination in the form of a statutory consolidation. what is the
balance In the new cor~oration 's Retained Earnings account?
o. The acqulrer Retrnned Earningsaccount balance
b. The acquiree Retained Earnings account balance
c. Zero
d. . The sum of t~e a~quirer and acquiree Retained Earningsaccount balances
76. Which of the following Is not true with regard to a business combination accomplished in the form of a
stock acquisition?
a. Two companies remain in existence after the combination
b. A parent-subsidiary relationship is said to exist
c. Consolidated financial statements are normally required
d. All of.the above statements are true •
77. Which of the following contingencies may change the cost of an acquisition ?
a. Future acquiree earnings
b. Future value of acquiree stock
c. Future value of ocquirer stock
d. Future value of acquirer debt
78. To qualify as a reorganization (for tax purposes). a business combination must meet which of the
following criteria?
a. Acquiree stockholders continue an indirect ownership interest in the acquiree
b. The acquirer must continue the acquiree business or employ a significant portion of the
acquiree net assets in an ongoing business ;,:
c. The combination must be for a valid business purpose
d. All of the above criteria are required to( a combination to qualify as a reorganization
79. Which of the following is not a business combination? ·
a. Statutory amalgamation
b. Joint venture
c. A company's purchase of 100% of another company's net assets
d. A company's purchase of 80% of another company's voting shares
80. Under PFRS 3. Business Combinations, which method must be used to account for business
combinations?
a. Purchase method c. Acquisition method
b. Pooling-of-interests method d. New entity method
81 . After an exchange of shares in a business combination, each group of shareholders held 50% of the
voting rights. Which of the following factors shoulq be considered in determining the acquirer?
a. Head office location
b. Composition of the board of directors
c. If there are material transactions between the combining companies
d. Which company initiated the combination
82. Perez Co. plans to acquire Roo, Co. Roo has substantial depreciable assets that have fair values in
excess of their book values. Considering only the income tax impact, which of the following statements

isa.true?
Perez would prefer to purchase Roo's assets and Roo would prefer to sell its shares to Perez.
b. Perez would prefer to purchase Roo'sshares and Roo would prefer to sell its_assets to Perez.
c. Both Perez and Roo would prefer Perez to purchase Roo'sshares.
d. Both Perez and Roo would prefer Perei to purchase Roo's assets.
83. Perez Co. acquired Roo Co. in a businesscombination. Roo issued ne~ s~ares to Perez's shareholdersin
exchange for their outstanding shares. What type of share exchange 1s this?
 CHAP TE ~
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a. Direct exchange c. Hostile takeover ·
b. Indirect exchange d. Reverse takeover
8-4. Perez Co. acquired Roo Co . in a business combination. PElrez issued n~w ~haresto Roo'ssharehOlde .
exchange for their outstanding shares. What type of share exchange 1s this?
a. Direct exchange c. Hostile takeover
b. Indirect exchange d. Reverse takeover
85. Ha Ltd. and Hee Ltd. exchanged shares in a business combination. After the share exchange
company held the same number of voting shares. Which of the following statements is true? ' 80cn
a. The company with the highest net assets is considered the acquirer.
b. The companies must ask the courts to decide which company is the acquirer.
c. A number of factors must be considered to determine which company is the acquirer.
d. There is no acquirer as this is not a proper businessicombination.
86. How should the transaction costs of issuing shares in an acquisition be recognized?
a. Expensed
b. Capitalized as part of the cost of the·shares
c. Deducted in total from shareholders' equity ·
d. Deducted from shareholders' equity, net of related income tax benefits
87. How should the cost of issuing debt in an acquisition be recognized?
a. Expensed ·
b. Amortized over the term of the debt
c. Deducted from the value of the debt
d. Deducted from shareholders' equity
88. How should accounting fees for an acquisition be treated?
a. Expensed in the period of acquisition
b. Capitalized as part of the acquisition cost
c. Deferred and amortized
'd. Deferred until the company is disposed of or wound-up
89. Which of the following is not a reason why ·a· private ·enterprise may be acquired as a bargain
purchase? ·
a. It is a family business and the next generation does not want to to continue the business.
b. The owner has health problems and does not have a successor.
c. The business only has equity financing cmd has no debt financing.
d. The owner is no longer interested in the bt1siness. · .
90. Which of the following statements about a bargain purchase is true?
a. It is reported on the financial statements as an "excess of fair value over cost of asse~
acquired".
b. It is reported as a deferred credit on the financial statements called negative goodwill.
c. Assets and liabilities of the acquired company are·reported at net book value.
d. Assets and liabilities of the acquired company are reported at their fair value.
91. What is the most common valuation method used for intangih>le assets?
-0. Market-b9sed c. Costsbased
b. Income-based d. Amortized cost
92. How should negative goodwill be shown on the consolidated financial statements of the acquirer?
a. As a gain on the statement of comprehensive:income · '
b. As a losrnn the statement of comprehensive income
c. As a liability on the statement of financial position
d. As a separate amount under shareholders' equity on-the statement of financial position
93. Raj Co. acquired all of Event Ltd.'s common shares. At the date of acquisition, Event had PB0,000 ° 1
11
goodwill resulting from its acquisition of Baker Ltd. a few years ago. At Raj's date of acquisition, what
- the proper treatment of Event's P80,000 of goodwill? . • . .
. a. Event's·goodwill is an identifiable asset and should be included as part of Raj's purchase pnce
discrepancy IPPD).
b. Event's goodwill is an identifiable asset but should not be included as art of Raj's PPD.
c. Event'sgoodwill is not an identifiable asset but should be included aspart of Raj'sPPD.
d. Event's goodwill is not an identifiable asset and should not be included aspart of Raj's·PPD.
94. Which of the following does NOT constitute a Business:-Cor:nbination under IFRS 3?
a. A Corp purchases the net assets of BCorp.
b. A Corp enters into a Jojnf.Venture with BCorp.

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 THEORIES

c. A Corp acquires 51% of 8 Cor , . .

,.
d. ACorp acquires 51% of BCo,P,s vo~ng shares for Pl ,000,000 in Cash.
95, What is a statutory merger? P svoting sharesfor future considerations.
a. A merger approved by the s 'ti
b. An acquisition involving the peu~~~ es Exchange Commission.
O
c. A takeover completed within onease oth _st?_ck and assets.
d. A business combination in . year of .he initial tender offer.
entity. which only one company continues to exist as a legal
96. Astatutory merger is a(n)
a. Business combination in which onl . , .
corporation Y one of the two companies continues to exist as a legal
b. Business combination in wh' h b0 th .
c. Acquisition of a competitoric . companiescontinues to exist
d. Acquisition of a suppHer or a customer
e.. ~e~al proposal_ to acquire outstanding shares of the target's stock
97. Liabilities-?ssumed I~ an acquisition will be valued at the
a. estimated fair value.
b. historical book value.
c. current replacement cost.
d. present value using market interest rates. .
98. In refe~ence to _the IASB disclosure requirements, which of the following iscorrect?
a. information relat~d to several minor acquisitions may not be combined.
b. firms are not required to disclose the business purpose for a combination
c. notes .to !he financial statements of an acquiring corporation must disclose that the business
combination was accounted for by the acquisition method.
d. all of the above are correct. ·
99. Goodwill arising from business combination is:
a. charged to Retained Earnings after the acquisition is co~pleted.
b. amortized over 40 years or its useful life, whichever is longer.
c. amortized over 40 years or its useful life, whichever is shorter.
d. never amortized. ·
I00.ln reference to international accounting for goodwill, which of th~ following statements is correcti
a. U.S. companies have complained that past accounting rules for amortizing goodwill placed
them at a disadvantage in competing against foreign
b. Some foreign countries permitted the immediate write-off of goodwill to stockholders' equity.
c. The IASB and the FASB are working to eliminate differences in accounting for business
combinations.
d. All of the above are correct.
IO I .In recording acquisition costs. which of the following procedures is correct?
a. Registration costs are expensed, and not charged against the fair value of the securities issued.
b. Indirect costs are charged against the fair value of the securities issued.
c. Consulting fees are expensed.
d. None of the above procedures is correct.
I 02. Which .one of the following statements is incorrect?
a. In an asset acquisition. the books of the acquired company are closed out and its assets and
liabilities are transferred to the books of the acquirer.
b. In many cases, stock acquisitions entail lower total cost than asset acquisitions.
c. Regulations pertaining to one of the firms do not automatically extend to the entire merged
entity in a stock acquisition.
d. A stock acquisition occurs when one corporation pays cash, issues stock, or issues debt for al or
part of the voting stock of another company; and the acquired company dissolves and ceases
to exist as a separate legal entity.
103.Which of the following can be used as consideration in a stock acquisition?
a. Cash c. Stock
b. Debt I d. Any of the above may be used
104.Slocum Corporation and Merton Company. both ?u~licly ow~ed companies. are planning a merger.
with Slocum being the survivor. Which of the following 1s a requirement of the merger?
a. The Securities and Exchange Commission must approve the merger
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b. The common stockholders of Merton must receive common stock of Slocum

c. The creditors of Merton must approve the merger
d. The boards of directors of both Slocum and Merton must approve the merger
105.PFRS 3 requires that all business combinations be accounted for using
a. The pooling of interests method.
b. The acquisition method.
c. Either the acquisition or the pooling of interests methods.
d. Neither the acquisition nor the pooling of interests meth.ods.
106.Under the acquisition method, if the fair values of identifiable net assets exceed the value implied by
the purchase price of the acquired company, the excess should be
a. accounted for as goodwill.
b. allocated to reduce current and long•lived assets.
c. allocated to reduce current assets and classify any remainder as an extraordinary gain
d. allocated to reduce any previously recorded goodwm on the seller's books and classify any
remainder as an ordinary gain.
107.PFRS 3 requires that the acquirer disclose each of the following for each material business combination
except the
a. name and a description of the acquiree acquired.
b. percentage of voting equity instruments acquired.
c. fair value of the consideration transferred.
d. each of the above is a required disclosure
108.When the acquisition price of'an acquired firm is less than the fair value of the identifiable net assets,
all of the following are recorded at fair value except
a. Assumed liabifities. c. Long-lives assets
b. Current assets · d. Each of the above is recorded at fair value
109. Under PFRS 3:
a. ' both direct and indirect costs are to be capitalized.
b. both direct and indirect costs are to be expensed.
c. direct costs are to be capitalized and indirect .costs are to be expensed.
d. indirect costs are to be capitalized and direct costs are to be expensed.
11 0.A business combination is accounted for properly as an acquisition. Which of the following expenses
related to effecting the business combination should enter into the determination of net income of the
combined corporation for the.period in which the expenses are incurred?
Security Overhead allocated
issue costs to the merger
a. Yes Yes
b. Yes No
C. No Yes
d. No No
111.ln a business combination, which of the following costs are assigned to the valuation of the security?
Professional or Security
consulting fees issue costs
a. Yes Yes
b. Yes No
c. No Yes
d. No No
112.Parental Company and Sub Company were combined ·in an acquisition transaction. Parental was
able to acquire Sub at a bargain·price. The sum of the fair values of identifiable assets acquired less the
fair value of fiabilities assumed exceeded the cost to Parental. After eliminating previously recorded
goodwill, there was still some "negative goodwill." Proper accounting treatment by Parental is to report
the amount as
a. paid-in capital.
b. a deferred credit, which is amortized.
c. an ordinary gain.
d. an extraordinary gain.
113.With an acquisition, direct and indirect expenses are
a. expensed i'n the period incurred.
. b. capitaliied and amortized over a discretionary period.
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c. considered a p~rt of the total cost of the acquired company.

d. c_harged to retained earnings when incurred.
114.ln a busmes~combination accounted for as an acquisition, how should the excess of fair value of net
assets acqu,r_ ed over the consideration paid be treated?
a. Amortized as a credit to income over a period not to exceed forty years.
b. Amortized a~ a charge to expense over a period not to exceed forty years.
c. Amortized directly to retained earnings over a period not to exceed forty years.
d. Record~d as an ordinary gain.
115.~f th~ value implied by the purchase price of an acquired company exceeds the fair values of
identifiable net assets, the excess should be
a. all~cated to reduce any previously recorded goodwill and classify any remainder as an ordinary
gain.
b. allocated t~ reduce current and long-lived assets.
c. allocated to reduce long-lived assets.
d. allocated goodwill
116.P Co. issued 5,000 shares of its common stock, valued at P200,000, to the former shareholders of S
Company two years after SCompany was acquired in an all-stock transaction. The additional shares
were issued because P Company agreed to issue additional shares of common stock if the average
post combination earnings over the next two years exceeded PS00,000. P Company will treat the
issuance of the additional shares asa (decrease in)
a. retained earnings.
b. goodwill.
c. paid-in capital.
d. non-current liabrnties 0f SCompany assumed by PCompany.
117.The fair value of assets and liabilities of the acquired entity is to be reflected in the financial statements
of the combined entity. When the acquisition takesplace over a period of time rather than all at once.
at what time is the fair value of the assets and liabilitiesof the acquired entity determined?
a. the date the interest in the acquiree was acquired.
b. the date the acquirer obtains control of the acquiree
c. the date of acquisition of the largest portion of the interest in the acquiree.
d. the date of the financial statements.
118.Under PFRS 3, what value of the assets and liabilities is reflected in the financial statements on the
acquisition date of a business combination?
a. Carrying value c. Book value
b. Fair value d. Average value
119.What is the appropriate accounting treatment for the value assigned to in-process research and
development acquired in a business combination?
a. Expense upon acquisition.
b. Capitalize as an asset.
c. Expense if there is no alternative use for the assets used in the research and development and
technological feasibility has yet to be reached. . . .
d. Expense until future economic benefits become certrnn and then cap1tahze as an asset.

120 An acquired entity has a long-term operating lease for an office building used for central
·management. The Jerms of the lease are very favor?ble rel~tive to c~rrent market rates. How~~er. the
lease prohibits subleasing or any other transfer of nghts. In ,ts financial statements, the acqu1nng fin'n
should report the value assigned to the lease contract as_ .
a. An intangible asset under the contractual- legal cntenon.
b. A part of goodwill. .. . .
c. An intangible asset under the separab1hty cntenon.
d. A building. ·. . . fl · -f f ?
J21 .Under PFRS 3, when is a gain recognized 1n consohdat1ng 1nanc1a11n orma ion
a. When any bargain purchase is created.
b In a combination created in the middle of a fiscal year. .
· - · ·ti n when the value of all assets and liabilities cannot be determined.
c. 1nan acqu1s1 o f th 1· bl nse(other
d. When the amount of a bargain purchase exceeds the va Iue o e opp 1ca e expe
than certain e)(ceptions) held by the acquired company.

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122.Compony B acquired the net assets of Company in exchange for cash. The acquisition Price
exceeds the fair value of the net assets acquired. How should Company B ~etermine the amounts
be reported for t~e plant and equipment, and for long-term debt of the acquired Company S? 10
Plant and Equipmenf Long-Term Debt
a. Fair value ' S's carrying amount
b. fair value Fair value
c. S's carrying amount Fair value
d. S's carrying amount S's carrying amount
123.Goodwill represents the excess cost of an acquisition over the
a. sum of the fair values assigned to intangible assets less fiobilities assumed.
b. sum of the fair values assigned to tangible .and identifiable intangible assets acqui'ec:1 less
ffabifities assumed. '
c. sum of the fair values assigned to intangibles acquired less liabilities assumed.
d. book value of an acquired company. '
124. When an acquisition of an9ther company occ,urs, IAS.B recommends disclosing all of the following
EXCEPT:
a. goodwill assigned to each reportable segment.
b. information concerning contingent consideration including a description of the arrangements
and the range of outcomes.
c. results of operations for the current period if both companies had remained separate.
d. a qua~tative description of factors that make up the goodwill recognized
125.Separotely identified intangible assets are accounted for by amortizing:
a. exclusively by using impairment testing.
b. based upon a pattern that reflects the benefits conveyed by the asset.
c. over the useful economic Hfe less residual value using only the straight-line method.
d. over a period not to exceed a maximum of 40 years.
126.Acquisition costs such as the fees of accountants and lawyers that were necessary to negotiate and
consummate the purchase are
a. recorded as a deferred asset and amortized over a period not to exceed 15 years.
b. expensed if immaterial but capitalized and amortized if over 2% of the acquisition price.
c. expensed in the period of the purchase..
d. included as part of the price paid for the company purchased.
127. Which of the following income factors should not be factored into an e~timation of goodwill?
a. sales for the period
b. income tax expense
c. extraordinary items .
d. cost of goods sold