ADVANCED ACCOUNTING THEORY

PFRS 3 – BUSINESS COMBINATION

1. Which of the following statements is true in relation to business combination?
a. A business combination is a transaction or other event in which an acquirer
obtains control of one or more businesses.
b. The acquisition method of accounting must be applied to all business
combinations.
c. The acquirer is the entity that obtains control of the acquiree.
d. All of these statements are true in relation to business combination.

2. Which of the following situations would require the use of the acquisition method
in a business combination?
a. The acquisition of a group of assets.
b. The formation of a joint venture.
c. The purchase of more than 50% of a business.
d. All of the above would require the use of the acquisition method.

3. It is a business combination in which all of the combining entities or businesses

are ultimately controlled by the same party or parties both before and after the
combination and the control is not transitory.
a. Business combination involving entities under common control.
b. Business combination involving entities under diversified control.
c. Full business combination.
d. Business reorganization.

4. The acquisition method of accounting for a business combination requires all,

except
a. Identifying the acquirer.
b. Determining the acquisition date.
c. Recognizing and measuring the identifiable assets acquired, the liabilities
assumed and the non-controlling interest in the acquiree at carrying amount.
d. Recognizing goodwill or gain from bargain purchase.

5. Which of the following is not one of the steps in accounting for acquisition?
a. Prepare proforma financial statements prior to acquisition.
b. Determine the acquisition date.
c. Identify the acquirer.
d. Expense the costs and general expenses of the acquisition in the period of
acquisition.

6. Which statement is Incorrect concerning an acquirer?

a. In a business combination effected by transferring cash or other assets, the
acquirer is usually the entity that transfers the cash or other assets.
b. In a business combination effected by issuing equity interest, the acquirer is
usually the entity that issues the equity interest.
c. The acquirer is usually the combining entity whose relative size is significantly
greater than that of the combining entity or entities.
d. If a new entity is formed to issue equity interests to effect a business
combination, the new entity formed is necessarily the acquirer.

7. In identifying the acquirer in a business combination, all of the following are

considered, except
a. The terms of the exchange of equity securities
b. The relative amount of intangible assets on the individual entity financial
statements..
 c. The relative voting rights in the combined entity after the combination.
d. The composition of the governing body of the combined entity.

8. What date should be used as the acquisition date for a business combination?
a. The date when the acquirer signs the contract to purchase the business.
b. The date when the acquirer obtains control of the acquiree.
c. The date when all contingencies related to the transaction are resolved.
d. The date when the acquirer purchased more than 20% of the stock of the
accquiree.

9. When should an acquirer derecognize a contingent liability recognized as the result

of an acquisition?
a. When it becomes more likely than not that the entity will not be liable.
b. When the contingency is resolved.
c. At the end of the year of acquisition.
d. When it is reasonably possible that the liability will not require payment.

10. In a business combination, goodwill is measured as

a. The consideration transferred minus the identifiable net assets acquired.
b. The total of the consideration transferred plus the amount of any non-controlling
interest in the acquiree minus the identifiable net assets acquired.
c. The total of the consideration received plus the fair value of the previously held
interest in the acquiree minus the identifiable net assets acquired.
d. The total of the consideration transferred, plus the amount of any non-
controlling interest in the acquiree plus the fair value of previously held interest
in the acquiree minus the identifiable net assets acquired.

11. How should an entity account for the incomplete information in preparing the
financial statements immediately after the acquisition?
a. Do not record the uncertain items until complete information is available.
b. Record a contra account to the investment account for the amounts involved.
c. Record the uncertain items at the carrying amount of the acquiree.
d. Record the uncertain items at a provisional amount measured at the date of
acquisition.

12. When does the measurement period end for a business combination in which there
was incomplete accounting information on the date of acquisition?
a. When the acquirer receives the information or one year from the acquisition
date, whichever occurs earlier.
b. On the final date when all contingencies are resolved.
c. Thirty days from the date of acquisition.
d. At the end of the reporting period in the year of acquisition.