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DRILL/ASSESSMENT

1. A & B transfer their businesses to Z. In return A & B each receive 50% of the voting shares in
Z. A & B each appoint 3 members to Z’s six-member board of directors. A also appoints the
chairman of Z. The chairman has a casting vote.

Who is the acquirer?

a. A
b. B
c. Neither A nor B
d. A and B

2. On January 1, 2016 A has 1,000 issued voting shares. On February 1, 2016 A acquires 100% of
B from B’s shareholders in exchange for 1,500 A voting shares.

Who is the acquirer in this business combination?

a. A
b. B
c. Neither A nor B
d. A and B

3. Pen Corporation owns 90% of the outstanding voting shares of Sion Company and Mat
Corporation owns the remaining 10% of Sion’s voting shares. On the consolidated financial
statements of Pen Corporation and Subsidiary, Mat is

a. an equity investee
b. an affiliate
c. a non-controlling interest
d. an associate

4. From the standpoint of accounting theory which one of the following statements is the best
one to support the preparation of consolidated financial statements?

a. In substance the companies are separate, but in form the companies are one entity.
b. In substance the companies are one entity, but in form they are separate.
c. In substance and form the companies are one entity.
d. In substance and form the companies are separate entities.

5. Consolidated financial statements are presented primarily for the benefit of:

a. the subsidiary’s creditors

b. the subsidiary’s stockholders
c. the stockholders and creditors of the parent company
d. the minority interest

6. On January 1, 2016, A acquired 60% interest in B for P80 million. A already held a 10% interest
which has been acquired for P12 million but which was fair valued at P15 million at January
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1, 2016. The fair value of non-controlling interest was P47 million and the fair value of
identifiable net assets of B was P130 million. The goodwill will be as follows using the full
goodwill method:

a. P1 million.
b. P12 million.
c. P35 million.
d. P38 million.

7. A has acquired a subsidiary on January 1, 2016. The fair value of the net assets of the
subsidiary acquired was P16 million. A acquired 60% of the shares of the subsidiary, for P11
million. The non-controlling interest was fair valued at P8 million. Goodwill based on the
partial goodwill method under PFRS 3 (revised) would be

a. P3 million.
b. P1.4 million.
c. P5 million.
d. P8 million.

8. A has acquired a subsidiary on January 1, 2016. The fair value of the net assets of the
subsidiary acquired was P16 million. A acquired 60% of the shares of the subsidiary, for P11
million. The non-controlling interest was fair valued at P8 million. Goodwill based on the full
goodwill method under PFRS 3 (revised) would be

a. P3 million.
b. P1.4 million.
c. P5 million.
d. P8 million.

9. On January 1, 2016, A acquired a 60% interest in B for P80 million. A already held a 10%
interest which had been acquired for P12 million but which was fair valued at P15 million at
January 1, 2016. The fair value of the non-controlling interest at January 1, 2016, was P47
million and the fair value of the identifiable net assets of B was P130 million. A gain relating
to the revaluation of the original equity interest would be recorded as follows

a. P3 million.
b. P12 million.
c. P35 million.
d. P38 million.

10. On December 1, 2015, Popular Inc. purchased for cash at P18 per share all 200,000 shares of
the outstanding common stock of Famous Company. At December 1, 2016, Famous’ balance
sheet showed a carrying amount of net assets of P3,200,000. At that date, the fair value of
Famous’ property, plant and equipment exceeded its carrying amount by P150,000. In its
December 1, 2015 consolidated balance sheet, what amount should Popular report as
goodwill?
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a. P550,000
b. P400,000
c. P250,000
d. P0

11. Daniel Co. purchased 100% of the outstanding common stock of Arenn Co. in an acquisition
by issuing 20,000 shares of its P1 par ordinary share that had a fair value of P10 per share and
providing contingent consideration that had a fair value of P10,000 on the acquisition date.
Daniel also incurred P15,000 in direct acquisition costs. On the acquisition date, Arenn had
assets with a book value of P200,000, a fair value of P350,000, and related liabilities with a
book value and fair value of P70,000. What amount of gain should Daniel report related this
transaction?

a. P55,000
b. P70,000
c. P80,000
d. P250,000

12. The statements of financial position of Pan and Day Corporations at year end 2015 are
summarized as follows:

Pan Day
Share Capital P2,500,000 P1,000,000
Retained earnings 1,000,000 500,000
Liabilities 1,500,000 500,000
5,000,000 2,000,000

Assets 5,000,000 2,000,000

On January 1, 2016, Pan purchased 90% of Day Corporation’s outstanding shares for
P2,000,000 when the fair value of Day’s net assets was P2,200,000. If a consolidated statement
of financial position is prepared immediately after the business combination and assuming
the non-controlling interest is measured or proportionate fair value of acquiree’s net assets,
the consolidated equity will be:

a. P7,000,000
b. P5,200,000
c. P3,720,000
d. P3,500,000

13. On July 1, 2016, when Solomon Company’s total shareholders’ equity was P260,000, Peter
Corporation purchased 7,000 shares of Solomon’s ordinary shares at P40 per share. Solomon
Company had 10,000 shares outstanding both before and after the purchase by Peter and the
book value of Solomon’s net assets on July 1, 2016 was equal to the fair value. The fair value
of the non-controlling interest’s shares in the subsidiary is P105,000. On a consolidated
statement of financial position prepared at July 1, 2016, goodwill would be shown at:
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a. P125,000
b. P98,000
c. P134,000
d. P50,000

14. The shareholder’s equity of Paul and Saul Corporations at December 31, 2015 are as follows
Paul Saul
Share Capital, P10 par P300,000 P100,000
Share Premium 50,000 150,000
Retained earnings 150,000 200,000
Totals P500,000 P450,000

On January 1, 2016, Paul and Saul consummate business combination in which Paul issues
15,000 shares for 90% of the outstanding shares of Saul. Shares of Paul currently sell for P20
in the market The consolidated statement of financial position of Paul Corporation and
Subsidiary immediately after the combination will show share premium in the amount of:

a. P125,000
b. P150,000
c. P185,000
d. P200,000

15. Sid Corporation acquires 70% of the outstanding stock of Arenn Corporation in a business
combination. The book values of Arenn’s net assets are equal to their fair values except for
the building whose net book value and fair value are P200,000 and P300,000, respectively. At
what amount will the building be reported on the consolidated statement of financial
position?

a. P200,000
b. P300,000
c. P270,000
d. P230,000