AFAR MIDTERM EXAM REVIEWER- Part 1 (with Answers)

TRUE. In a business combination achieved by contract alone, the interests held by parties other than the
acquirer are attributed to NCI, even if the result is that NCI represents 100% interest in the acquiree.

A business combination may result to a 100% non-controlling interest.

FALSE. - Negative goodwill is also known as gain on acquisition or gain on bargain purchase, it is not
recognized as a current asset but as a gain in profit or loss of the acquirer in the year of acquisition but
only after reassessment of the assets acquired and liabilities assumed in the business combination.

Negative goodwill is treated as a current asset.

TRUE. The costs of maintaining recognized goodwill are not capitalized but rather expensed immediately
as well as the costs of internally developed goodwill.

Subsequent expenses on maintaining goodwill are expensed immediately.

TRUE. A pre-existing relationship is a relationship between the acquirer and acquiree that existed before
the business combination and this relationship may be contractual like franchisor and franchisee or non-
contractual like plaintiff and defendant. So the acquiree and acquirer may have pre-existing relationship
and if the pre-existing relationship is settled due to the business combination, then the acquirer shall
recognize a settlement gain or loss.

Prior to business combination, the acquirer and acquiree may have pre-existing relationship. If due to
the business combination, the pre-existing relationship is settled, the acquirer shall recognize a
settlement gain or loss.

TRUE. The consideration transferred in a business combination includes deferred payment, and if this is
the case, the consideration transferred is measured at present value.

If the consideration transferred in a business combination is deferred, the consideration may be

measured at present value.

FALSE - A right that an acquirer has previously granted to the acquiree that is reacquired as a result of a
business combination is recognized as an intangible asset separately from goodwill, hence it is not
subsumed in goodwill.

If as part of a business combination, an acquirer reacquires a right that it had previously granted to the
acquiree, such reacquired right is an identifiable asset that the acquirer subsumes in goodwill.

TRUE. A business combination may be accomplished through exchange of equity interests between
acquirer and acquire ( former owners ) and the consideration transferred is measured at the acquisition
date fair value of the acquirer's share.

The acquirer may record an increase in its share premium under business combinations accomplished
through a mere exchange of equity interests between the acquirer and the acquiree ( former owners ).

FALSE. The normal balances of CS, APIC and RE are credit, so in order for them to be eliminated, such
accounts must be debited.

In the elimination entries, common stock, APIC and retained earnings accounts of the acquired company
are credited.

TRUE - If the non-controlling interest is measured at fair value, the goodwill actually is attributable to
both the owners of the parent and the NCI. Hence, the recognition of NCI's share of goodwill is
permitted.

PFRS 3 permits the recognition of non-controlling interest's share of goodwill.

TRUE - the non-controlling interest which represents the interest of parties other than the parent is
presented within equity but separate from the equity of the owners of the parent

In a consolidated statement of financial position, NCI in net assets is presented within equity but
separate from the equity of the owners of the parent.

TRUE - Changes resulting from meeting an earnings target, reaching a specified share price or reaching a
milestone on a research and development project are not measurement period adjustments, hence the
recognized goodwill and consideration transferred (cost of combination) are not affected regardless the
outcome of the contingency.

When a contingent consideration is based on a specified level of future earnings and the specified level
is achieved, there is no adjustment to the cost of the combination and the consequential goodwill on
combination.

FALSE - If the non-controlling interest is measured at fair value, the goodwill actually is attributable to
both the owners of the parent and the NCI. But if the NCI is measured at the NCI's proportionate share
in the net identifiable assets of the acquiree, then the goodwill is attributable only to the parent.

If the non-controlling interest in net assets is measured at fair value, the goodwill is attributable only to
the owners of the parent.

FALSE - At each reporting date, goodwill is measured at acquisition-date fair value less accumulated
impairment losses.

Goodwill is remeasured to fair value at each reporting date.

TRUE - Consolidation begins from the date the investor obtains control of the investee and ceases when
the investor loses control of the investee. These cases are accounted for prospectively.

Consolidation starts when control is obtained and ceases when control is lost. Both cases are accounted
for prospectively.
TRUE - Based on IFRS 10.

Consolidated financial statements are prepared by combining the financial statements of the parent and
its subsidiaries line by line by adding together similar items of assets, liabilities, equity, income and
expenses.

TRUE - Consolidated retained earnings only include the RE of the parent and the share of the parent on
the subsidiary's change in net assets. CRE - parent's RE from its own operations and the parent's
proportionate share of the net income of the subsidiary

Consolidated retained earnings include the retained earnings of the parent plus the parent's share in the
change in net assets of the subsidiary since acquisition date.

TRUE - The result of a separate transaction is not part of the business combination transaction.

The identifiable assets acquired and liabilities assumed must be part of what the acquirer and the
acquiree ( or its former owners ) exchanged in the business combination transaction rather than the
result of separate transactions.

FALSE - Control is presumed to exist when the acquirer holds more than 50% meaning 51% or more of
the voting stocks of another company, thereby having controlling interest

Generally, consolidated financial statements are to be proposed if one company owns 50% or more of
the voting stocks of another company, thereby having controlling interest.

FALSE - In a reverse acquisition, the entity that issues securities is identified as the acquiree for
accounting purposes ( legal acquirer ), while the entity whose equity interest are acquired is the acquirer
for accounting purposes ( legal acquiree ).
In a reverse acquisition, the entity whose equity interests are acquired is the acquiree for accounting
purposes.

TRUE - C. Applying the recognition principle may result to the acquirer recognizing assets and liabilities
that the acquiree had not previously recognized in its financial statements. Hence, an intangible asset
that is unrecorded by the acquiree may nevertheless be recognized by the acquirer in a business
combination.

An intangible asset that is unrecorded by the acquiree may nevertheless be recognize by the acquirer in
a business combination.