CENTRAL LUZON STATE UNIVERSITY

ACCOUNTANCY OF BUSINESS AND ACCOUNTANCY

SCIENCE CITY OF MUÑOZ, NUEVA ECIJA

ACCTG 2215 - BUSINESS COMBINATION

FINAL REQUIREMENTS
TOPIC: BUSINESS COMBINATION

Escote, Althea Marie SM.

Esquivel, Jhosep I.
Evangelista, Aizell M.
Fernando, Danica J.
Gavino, Noella Mae L.

Hazel Jade Villamar

Instructor

May 27, 2024

 REFERENCE

Chapter 1 - Business Combination (Part 1) (2023rd ed.). (n.d.). Zeus Vernon B. Millan.

QUIZ Chapter 1 Business Combinations (PART 1). (n.d.).

https://www.studocu.com/ph/document/first-asia-institute-of-technology-and-

humanities/accountancy/quiz-chapter-1-business-combinations-part-1/28583612

Chapter 2 - Business Combination (Part 2) (2023rd ed.). (n.d.). Zeus Vernon B. Millan.

QUIZ Chapter 2 Business Combinations (PART 2). (n.d.). Studocu.

https://www.studocu.com/ph/document/first-asia-institute-of-technology-and-

humanities/accountancy/quiz-chapter-2-business-combinations-part-2/28583622

THEORIES
1. Statement 1: Business Combination is the bringing together of separate entities or
businesses into one reporting entity.
Statement 2: The company that is controlled is known as the parent or the acquirer

A. First statement is true

B. First statement is false
C. Both statements is true
D. Both statements is false
Answer: D

2. It is a type of business combination wherein the acquirer shall remeasure its previously
held equity interest in the acquiree at its acquisition-date-fair value and recognize the
resulting gain or loss, if any.

A. Step acquisition
B. Business combination without any transfer of consideration
C. Acquisition method
D. Consolidation transferred
Answer: A

3. All of the following are considered as advantages of the business combination, except:

A. Competition is completely eliminated

 B. Reduction of operating cost
C. Increased business opportunities and earnings potential
D. None of the above
Answer: A

4. The following are examples of restructuring, except:

A. Termination benefits given to retrenched employees

B. Changes in management structure
C. The relocation of business activities from one country or region to another or
closure
D. Cost of relocating continuing staff
Answer: D

5. Statement 1: In applying the acquisition method, the acquirer identifies and includes
amounts that are not part of the consideration transferred in the business combination.

Statement 2: A transaction that is for the benefit of the acquiree should be part of a
business combination.

A. Both statements are true

B. First statement is false
C. Both statements are false
D. First statement is true
Answer: C

6. A business combination take place when a company acquired an equity interest in

another entity and has

A. Less than 49% ownership in the entity

B. 99% ownership in the entity
C. Control over the entity, regardless of the percentage owned
D. More than 50% ownership interest in the acquiree’s voting rights
Answer: C

7. The following are subsequently accounted for under PFRS 3, except:

A. Indemnification of assets
B. Consideration transferred
C. Reacquired rights
D. Contingent consideration
Answer: D

8. Which of the following will happen during a merger?

A. A merger happens when one corporation takes over the operations of another
commercial entity, and the latter is dissolved.
B. No business entity shall be dissolved.
 C. The acquiring entity will register the acquired assets at their book value.
D. None of the foregoing is correct.
Answer: A

9. Which of the following is correct regarding the FASB disclosure requirements?

A. Firms are not required to disclose a merger's business purpose.

B. You may not combine information from several minor acquisitions.
C. Notes to the financial statements of an acquiring corporation must disclose
that the business combination was accounted for by the acquisition method.
D. All of the above is correct.
Answer: C

10. Contingent liabilities that is recognized in a business combination are measured at higher
of:

A. The amount that would be recognized by applying PAS 37

B. The amount initially recognizes less, if appropriate, cumulative amount of
income recognized in accordance with PFRS 15
C. Both a and b
D. None of the choices
Answer: C

11. Which of the following is the correct technique for recording acquisition costs?

A. Registration fees are incurred and not deducted from the fair value of securities
issued.
B. Indirect costs are applied to the fair value of securities issued.
C. Consulting fees are expensed.
D. None of the above procedures is correct.
Answer: C

12. Which of the following is a reason why a corporation would expand through a
combination rather than developing new facilities?

A. A combination could facilitate easier access to intangible resources.

B. A combination might provide fewer operating delays.
C. A combination may provide cost advantages.
D. A company might consider all of the aforementioned factors and choose a
combination.
Answer : D

13. It is a business combination of two or more entities with similar businesses.

A.Vertical combination
B.Identical combination
C.Similar combination
 D.Horizontal combination
Answer : D

14. On March 1, 20x1, OWLY Co. acquired GLC Co. in a business combination that resulted
in goodwill. By December 31, 20x1, the initial allocation of goodwill is not yet
completed. According to PAS 36, OWLY should
A. complete the initial allocation before the end of December 31, 20x1.
B. complete the initial allocation before the end of December 31, 20x2.
C. complete the initial allocation before the end of November 30, 20x1.
D. complete the initial allocation before the end of September 1, 20x2.
Answer: B

15. Statement 1: The acquisition method requires identifying the acquiree and the
acquisition date and recognizing and measuring goodwill.

Statement 2: Entity A owns 75% interest of Entity B. The non-controlling interest,

therefore, in Entity B is 25%
A. First statement is true
B. First statement is false
C. Both statements is true
D. Both statements is false
Answer: B

16. According to PFRS 3, A 'gain on a bargain purchase' is

A. Recognized in profit or loss in the year of acquisition

B. Amortized in profit or loss over the lower of its legal life and estimated useful
life
C. Recognized in profit or loss in the year of acquisition but only after
reassessment of the assets acquired and liabilities assumed in the business
combination
D. Any of these
Answer: C

17. Statement 1. An accounting method and computation of goodwill using full PFRSs,
acquisition-related costs are expensed, except costs of issuing equity or debt securities.
Statement 2. An accounting method and computation of goodwill using PFRS for SMEs
and SEs, acquisition-related costs are included in the cost of the business combination,
except costs of issuing equity or debt securities.

A. Both statements are true

B. First statement is false
C. Both statements are false
 D. First statement is true
Answer: A

18. When the term of operating lease in which the acquiree is the lessee is unfavorable,

A. the acquirer recognizes a loss on the income statement.

B. the acquirer recognizes a liability.
C. the acquirer recognizes an intangible asset.
D. the acquirer does not recognize any separate intangible asset or liability
regardless of whether the terms of the operating lease are favorable or
unfavorable.
Answer: B

19. How is non-controlling interest measured when computing for the goodwill?

A. Either at fair value or NCI’s proportionate share in the acquiree’s net

identifiable assets.
B. Either at fair value or NCI’s proportionate share in the acquirer’s net
identifiable assets.
C. Either at previous carrying amount or net realizable value.
D. All of the given choices are applicable as long as the way of measurement of
NCI is based on the accounting policy of the firm.
Answer: A

20. Under PFRS 3, a contingent liability assumed in a business combination is recognized if:

A. it is a present obligation that arises from past events

B. its fair value can be measured reliably
C. both A and B
D. None. Contingent liability is never assumed in a business combination.
Answer: C

21. Oklahoma Co. obtained control of Chicago Co. in a business combination. When
computing for goodwill, Oklahoma Co. would most likely account for all of the
following, except:

A. Operating lease between Oklahoma Co. and Chicago Co., wherein Chicago
Co. is the lessee.
 B. Oklahoma Co.’s costs of exiting or terminating some or all of Chicago Co.’s
activities after the combination.
C. Chicago Co.’s unrecorded identifiable intangible assets.
D. Chicago Co.’s research and development projects that were already charged as
expenses, but have a fair value as at the acquisition date.
Answer: B

COMPUTATIONAL
Use the following information for the next two questions:
On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. For ₱3,500,000 cash. ABC
Co.incurred transaction costs of ₱250,000 for legal, accounting and consultancy fees in
negotiating the business combination. The carrying amounts and fair values of XYZ’s assets and
liabilities at the acquisition date were as follows:

1. How much is the goodwill (gain on bargain purchase) if ABC Co. elected to measure the
NCI using fair value:
A. 1,590,000 B. 1,425,000
C. 887,500 D. 1,650,000
Answer: B

SOLUTION:

Fair value of identifiable assets acquired excluding goodwill 3,950,000

(4,000,000 Total Assets - 50,000 Goodwill)

Less: Fair value of liabilities assumed (1,000,000)

Fair value of net Identifiable asset acquired 2,950,000

Goodwill Computation:

Consideration Transferred 3,500,000

NCI in the acquiree (3,500,000/80%)(20%) 875,000

Previously held equity interest in the acquiree —____

Total 4,375,000

Less: Fair value of net identifiable assets acquired (2,950,000)

Goodwill 1,425,000 .