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    26 views10 pages

    Untitled 5

    Uploaded by

    Alliah Gianne Jacela

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    of 10
    CPA REVIEW SCHOOL OF THE PHILIPPINES Manila Guerrero/German/DeJesus/Lim/Ferrer/Laco/Valix : Theory of Acco 1. PFRS 3 defines it as a transaction or other event in which an acquirer obtains control of one or more businesses. ‘A. Business combination B. Consolidation C. Merger D. Acquisition of net assets 2. Under PFRS 3, how shall an entity (acquirer) account for each business combination? A. Pooling of interest method B. Proportionate consolidation method C. (eau Rietiod ft D. Equity method akeiatve 3. Applying acquisition method for business combination requires the following steps, except A. Identifying the acquirer B. Determining the acquisition date C. Recognising and measuring the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquire D. Recognising and measuring goodwill or a gain from a bargain purchase. E. Siar eet j a ._ In different types of business combination, which of the following is not considered as an acquirer? A. The remaining or absorbing corporation in case of 2 ie - a C. The corporation that acquires more than 50% of the other corporation’s ordinary shares. D. The corporation that controls the acquire, Which of the following statements conceming the identification of the acquirer in a business combination is incorrect? A Kailinee B. In business combination through consolidation, the acquirer is any of the consolidating corporations, CC, In business combination effected primarily by transferring assets or by incurring liabilit issuing shares, the acquirer is usually the entity that transfers the cash, incurs the liat issues the shares. D. In some business combination, commonly called “reverse acquisition” the issuing entity is the acquire while the other entity that receives the issued shares is the acquirer. ies or »._ It refers to the date on which the acquirer obtains control of the acquiree. A. Business combination date B. C. Control date D. Consolidation date - AS of the acquisition date, the acquirer shall ‘recognise, separately from goodwill, the identifiabl assets acquired, the liabilities assumed and any non-co i n the acquire seat rule, the acquirer shall measure the identifiable ts AL Page 2 8. For each business combination, the acquirer shall measure at the acquisition date components of noncontrolling interests(NCI) in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation at either A. Pair value B. The present ownership instruments’ proportionate share in the recognised amounts of the acquiree's identifiable net assets. C. Either A or B, — D. Neither A nor B. 9. Under PFRS 3, contrary to PAS 37, what is the recognition principle of contingent liability assumed in a business combination? A a ee if it is a present obligation that arises from past events and its fair value can be — measured reliably even only reasonably possible, B. The acquirer shall recognise a contingent liability assumed in a business combination at the acquisition date only if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. €. The acquirer shall recognise a contingent liability assumed in a business combination at the acquisition date only if it is virtually certain that an outflow of resources embodying economic benefits will be required to settle the obligation. D. The acquirer shall recognise a contingent liability assumed in a business combination at the acquisition date only if it is remote that an outflow of resources embodying economic benefits will be required to settle the obligation. 10. What is the measurement of the consideration transferred or given up in a business combination? C. Acquisition date-face value D. Acquisition date-carrying value 11. If the aggregate of the (a) consideration transferred measured in accordance with this IFRS, which generally requires acquisition-date fair value; (b) the amount of any non-controlling interest in the acquiree measured in accordance with PRS 3; and (c) in a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree is less than the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with IFRS 3 (FVNAA), the difference shall be classified as A. Goodwill to be presented as noncurrent asset B. C. Gain on acquisition to be presented as part of OCI D. Share premium from issuance of shares 12. If at the date of acquisition, the aggregate of (1) the fair value of consideration transferred, (2) the amount of NCI measured at either (a) fair value or (b) proportionate share of fair value of net assets of acquiree, and (3) in a business combination achieved in stages, the acquisition date fair value of the previously held equity interest, exceeds the fair value of net assets of the acquire (FVNAA), the difference shall be treated by the acquirer as A B. Gain on bargain purchase to be recognized at acquisition date Consolidated Statement of Comprehensive Income as part of profit or loss but attributable to parent's shareholders only. C. Negative goodwill to be subject to amortization for a presumed life of 10 years. D. Impairment loss to be recorded at acquisition date Consolidated Income Statement. . 8715 13. 14, 1s 16. Result of @ comdcrgtion giver © FW Norcontn! Page 3 How shall the acquirer account for its previously held equity interest in the acquire upon obtaining control of the acquiree or how shall an acquirer account for a business combination achieved in stages a.k.a, step acquisition? A. The acquirer shall treat the transaction as change in accounting policy to be treated retrospectively at acquisition date. The acquirer shall account the transaction as prior period error to be treated by retroactive restatement. 3 c. p held interest in the acquiree at its acquisition- ulting gain or loss Msn ProfvLass. 5 : D. The acquirer shall not include the previously held equity interest in the computation of goodwill or gain on bargain purchase arising from business combination. B. Under PPRS 3, what is the treatment of zequis related costs in a business combination? A. It shall be expensed as incurred and presented as part of profit or loss, — B. It shall be capitalized as part of consideration given up in computation of goodwill or gain on bargain purchase. C. It shall be debited to share premium. D. It shall be charged directly to retained earnings. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. What is the maximum term or period of the measurement period? A. B. 6 months from the acquisition date C. 3 months from the acquisition date D. 1 month from the acquisition date Some changes in the fair value of contingent consideration that the acquirer recognises after the acquisition date may be the result of additional information that the acquirer obtained after that date about facts and circumstances that existed at the acquisition date, These are called measurement period adjustments that can be adjusted during the measurement period, Which of the following transactions is considered as a measurement period adjustment that the acquirer shall retrospectively adjust to goodwill/(gain on bargain purchase) during the measurement period which shall not exceed one year from the acquisition date? ‘A. Changes in the value of contingent consideration occurring within one year from the acquisition date as a result of events occurring after the acquisition date such as meeting an earnings target, a specified share price or reaching milestone on a research and development project. B. Increase in the fair value of the financial liability at fair value through profit or loss issued as consideration for business combination due to movement of prices in the exchange market. C. Change in the carrying amount of the financial liability at amortized cost issued as consideration for business combination due to amor n of the premium/(discount) on financial lis D. 0 fen et Ac of face Ee One an (ove eg got) a VS. ¥ Gn denne Ae — Ft Na)) bee garg > rm entaie WA © GW ‘o enied grave (FV) < Fh Udentiiaide WA = Ge Sadr Cnryc oe mage Wale ms BAS 8715 4. Orga amdocton Seri’ yy) ex ‘ ig ie es gaits interest wir given aed | OM ed ate 6 fowe J anna > rtimate hore 5 ii x 19) 17. 18. 19. © ee nacre tm: Arait00_ Coo @ Arc kequvor 9 Page 4 How shall an acquirer in a business combination account for the changes in fair value of contingent consideration classified as financial liability if the changes result from events after the acquisition date? ay caagen} eden - Lata ide Me, Ea + penance reeeenneeestite in profit or loss because they are not measurement B. The changes in fair value of contingent consideration classified as financial liability shall be retroactively adjusted to goodwill/gain on bargain purchase because they are measurement period adjustments, C. The changes in fair value of contingent consideration classified as financial liability shall be retrospectively restated to beginning retained earnings because they are prior period error. D. The changes in fair value of contingent consideration classified as financial liability shall be retroactively applied to beginning retained earnings because they are change in accounting policy. How shall an acquirer in a business combination account for the changes in fair value of contingent consideration classified as equity instrument if the changes result from events after the acquisition date? A. The changes in fair value of contingent consideration classified as equity shall be recognized as in or loss in profit or loss because they are not measurement period adjustments. B. and its not measurement c. im changes in fair value of contingent consideration classified as equity shall be retrospectively restated to beginning retained earnings because they are prior period error. D. The changes in fair value of contingent consideration classified as equity shall be retroactively adjusted to goodwill/gain on bargain purchase because they are measurement period adjustments. Which of the following accounting treatments for costs related to business combination is incorrect? A. Acquisition related costs such as finder’s fees; advisory, legal, accounting, valuation and other professional and consulting fees; and general administrative costs, including the costs of maintain an internal acquisitions department shall be recognized as expense in the Profit/Loss in the periods in which the costs are incurred. B. The costs related to issuance of stocks or equity securities shall be deducted/debited from any share premium from the issue and any excess is charged to “share issuance cost” reported as contract-equity account against either (i) share premium from other share issuances or (2) retained earnings. C. The costs related to issuance of financial liability at fair value through profit or loss shall recognized as expense while those related to issuance of financial liability at amortized cost shall be recognized as deduction from the book value of financial liability or treated as discount on financial liability to be amortized using effective interest method. O exhaukt S wp fo resulting BRI suiting AA1G (RA). panei fea aati) @ fryoset mt redid “ie” elope ery) 8) ear axceunt Yh ve CNN a in order of eff pace) Gs i eat bypense 4. Prod. reh. API aquer ra d+ Lashng Fee b. RE Aauiter @ ee Be cape tls ROGNAIee ee saat ss ‘SIC i Ld Aauirer (BV. whe ” Ome “Opa gute om 8 vem pent Gnd we Cental mi XK beg cg) BTS 6 dc ton he cain payments —— fer ree iy Pate ec regutratin fee Invertment in Gasiaay Gri) ‘i ~ ©) what sh-cap- % wa" Boag Ones Si-cap.-ncpirer alain = esttaga coi Cea) Oe ee os eres i Dial rare Capital XY Page 5 rt I: Problem Solving PROBLEM 1: Entity A acquired the net assets of Entity B by issuing 10,000 ordinary shares with par value of P10 and bonds payable with face amount of P500,000. The bonds are ‘classified as financial liability at amortized cost. At the time of acquisition, the ordinary shares are publicly quoted at P20 per share. On the other hand, the bonds payable, classified as financial liability at amortized cost, are trading at 110, "lo ssw Entity A paid P10,000 share issuance costs and P20,000 bond issue costs. Entity A also paid P40,000 acquisition related costs and P30,000 indirect costs of business combination. Before the date of acquisition, Entity A and Entity B reported the following data: Entity A Entity B Current assets 1,000,000 2" 500,000 Noncurreni assets 2,000,000 1,000,000 |”. Current liabilities 200,000 400,000 ar. Noncurrent liabilities 300,000 M10 500,000 Ordinary shares 500,000 200,000 Share premium 1,200,000 300,000 Retained earnings 800,000 100,000 At the time of acquisition, the current assets of Entity A have fair value of P1,200,000 while the noncurrent assets of Entity B have fait value of P1,300,000. On the same date, the current liabilities of Entity B have fair value of P600,000 while the noncurrent liabilities of Entity A have fair value of P500,000. 1. What is the goodwill or gain on bargain purchase arising from business combination? feares (loom y?20) FIA A. ce aid ends (sman to) 2.00 B. 150,000 gain on bargain purchase ‘al F79,10, C. 120,000 goodwill PVotwet seh acquted cme) D. 70,000 gain on bargain purchase Geran 2. What total amount should be expensed as incurred at the time of business combination? ‘A. 20,000 faith traed oh 4000 B Indret crt one C. 30,000 ‘ie ences rea D. 50,000 3. What s Entity A’s amount of total assets after the business combination? BM, A. 4,520,000 fot

    14000 tn ajay = FOS Sa a - _hagegate. 15.40. ‘ho 1%. C. 6,500,000 ah ston funn (4,500,00) UG. J25% 00 Pedn, D. (6,400,000%) Aaggeyae Fria = Anan ay G (um an 20). 16) 2. What is the balance of P Co.’s Investment in S Co. account in the consolidated financial statements immediately after acquiring the additional 60% interest? A. 1,250,000 2,500,000 G eliminated in the Commidated Fmanda Saleen, D. 14,000,000 3. What s the balance of the retained earnings in P Co.'s consolidated financial statements? A. 1,250,000 Paxman _ Investment in atociake 9 Om ey @ sso os on mt D. 6,400,000 ipm Ime, an Goin em ewes 0,0 4. ia. of the nso interest in P Co.’s consolidated financial statements? A soko 18. B. 0 C. 2,500,000 D. 1,250,000 8715 Page 9 PROBLEM 6: Blue Co. merged into Soda Corp. on June 30, 2020. In exchange for the net assets at fair market value of Blue Co. amounting to P2,785,800 , Soda issued 68,000 ordinary shares at P36 par value, with at a market price of P41 per share. Relevant data on ordinary shareholders’ equity immediately before the combination show: | = uw | ae Ble x edly of 9. YK | Share capital 8,790,000 2,030,000 "aac Share premium 3,834,000 782,000 changes in cron. Paes Retained earnings (deficit) (4,516,000) 495,000 ‘rag Re rag f oe obran Out of pocket costs of the combination were as follows: meets | i age, | ate gh Pe | © Legal fees for the contract of business combination 174,700" fy cstng cnt a a3 | © Audit fee for SEC registration of stock issue 198,4005° J" tutrumene susequer ceiement © Printing costs of stock certificates 144,9005% | x nade win equty. © Broker’s fee 135,000 petad Adjutant © Accountant’s fee for pre-acquisition audit 161,000! | © Other direct cost of acquisition uae © General and allocated expenses 300K | 2. tamper sare pce : © Listing fees in issuing new shares 172,0004vc | 3: merle on Rerarcn veut | Included as part of the acquisition agreement is the additional cash consideration of P163,000 in the event Soda Co.’s share price will reach P32 per share by year-end. © Atacquisition date, the share price is P27.50, and increased by P4.80 by December 31, 2020. © At acquisition date, there was only a low probability of reaching the target share price, so the fair value of the additional consideration was determined at P74,000. ‘What is the amount of expense to be recognized in the statement of comprehensive income for the year ended December 31, 2020? peas (Racy mjnija0 2108 00) (eet) sh. XA) TUEAO Gt mH A. 676,400 Fad Gor, t2194.00 (ide) ) One a B. 851,700 COO ay Hey _ (Akemi ase) rane Se am C. 848,400 | famam = nL om —_. W D.§537A00N = — vag (aes) fran 2M ee) ante sete eninge consideration (ide) 7.0 Gndnil $1420 ? ® pan (ork. coi Clits) 74 PROBLEM 7: On January 1, 2021, Parent Ine. acquired all the assets and liabilities of Subsidiary Inc. by issuing 50,000 shares. On this date the fair value of Parent Inc.'s shares is PSO per share and its par value is P10 per share. On January 1, 2021, the book value of Subsidiary’s total assets is P2,500,000 and its fair value is P3,000,000 while its total liabilities book value and fair value are P1,2000,000 and P1,000,000 respectively. Parent and Subsidiary agreed that Parent shall issue additional 2,000 shares to the former owners of ‘Subsidiary if the market price per share of Parent Inc.'s shares increases to P55 per share as of December 31, 2021. On the date of acquisition, the contingent consideration that was probable and reasonably estimated amounted to P100,000. On December 31, 2021, the actual market price of Parent Inc.’s share is P60. The Contingent consideration is settled on March 22. Fan ares 1,540 e7) (SDK y.50) ~ eM Ach uD oe coe cnivcans- _(ea.ere Cea) ew om iat 1. Which of the following is incorrect? Fuga damm) 4AM ay ed enn

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