CHAPTER 1 THEORIES

TRUE OR FALSE
1. When two entities competing in the same industry combine, it is called a horizontal business
combination. TRUE
2. Horizontal business combinations are likely to occur when management is attempting to
dominate a geographic segment of the market. FALSE
3. One way that a horizontal business combination can increase sales for an entity is to expand
into new product markets. TRUE
4. A vertical business combination generally involves companies attempting to improve the
efficiency of operations by purchasing suppliers of inputs or purchasers of outputs. TRUE
5. When a retail clothing store purchases a competitor in city, a vertical combination has
occurred. FALSE
6. A vertical combination is one where the entities have a potential buyer-seller relationship.
TRUE
7. A business combination in which a supplier of raw materials is acquired is a conglomerate
combination. FALSE
8. A conglomerate combination is often undertaken to help increase income stability due to
diversifying the asset base of an entity. TRUE
9. Conglomerate combinations are easy for the government to challenge in court. TRUE
10. If negotiation between management groups leads to a mutually agreeable business
combination, the process is called a friendly takeover. TRUE
11. An offer by an acquirer to buy the stock of another company is commonly called a tender offer.
TRUE
12. A tender offer that is opposed by the acquiree management is called a hostile bid. TRUE
13. Greenmail exists when a company is encouraged to buy a potential acquiree. FALSE
14. A poison pill is the term used to describe the issuance of a special kind of convertible preferred
stock to deter the acquisition of the company. FALSE
15. The sale of the crown jewels defensive maneuver involves the sale of more assets than does
the scorched earth defense. FALSE
16. The pacman defensive maneuver involved the acquisition of assets by the potential acquiree.
TRUE
17. Golden parachutes give a bonus to all employees if the company is acquired. FALSE
18. The packman defensive maneuver is where a potential acquire attempts to purchase the
acquirer. TRUE
19. A business combination occurs when one entity gains control over the net assets of another
entity. TRUE
20. The only way to attain control over the net assets of another entity is to purchase the net
assets. FALSE
21. In an acquisition where the acquirer pays cash for the acquiree assets, the book value of the
acquirer increases. FALSE
22. In an acquisition of assets for assets, the ownership structure of the acquiree does not
change. TRUE
23. In an acquisition of assets for assets, the ownership structure of the acquirer changes. FALSE
24. There is an increase in the total capitalization of an acquirer when the acquirer issues stock for
acquiree assets. TRUE
25. In an exchange of stock (acquirer) for assets (acquiree), the ownership structure of the
acquiree does not change. TRUE
26. In an exchange of stock (acquirer) for assets (acquiree), the acquiree stockholders become
acquirer stockholders. FALSE
27. Control over the acquiree assets is directly achieved in an asset for asset exchange but
indirectly achieved in an asset (acquirer) for stock (acquiree) exchange. TRUE
28. A business combination that occurs where only one of the original entities in existence after
the combinations called a statutory consolidation. FALSE
29. The acquiree entity is liquidated in a statutory merger. TRUE
30. For a business combination to qualify as a statutory consolidation, a new corporation must be
formed. TRUE
31. In a statutory consolidation form of business combination, the Retained Earnings account of
the newly formed corporation has a balance of zero immediately after the combination. FALSE
32. After completing a business combination in the form of a statutory merger or statutory
consolidation, there is only one legal entity in existence. TRUE
33. In a business combination accomplished as a stock acquisition normally two companies exist
after the combination. TRUE
34. A business combination accomplished as a stock acquisition must be accomplished with a
stock for stock exchange. FALSE
35. A stock acquisition is the only form of business combination that might require the preparation
of consolidated financial statements. TRUE
36. The substance of statutory mergers, statutory consolidations, and stock acquisitions is the
same if income tax considerations are ignored. TRUE
37. There are no uncertainties when two companies agree on a business combination. FALSE
38. When the acquisition price of an acquiree is contingent on acquiree future earnings, the
acquisition price may change? TRUE
39. When the acquisition price of an acquiree is contingent on the market value of the acquirer
stock, the acquisition price may change? FALSE
40. For business combinations to qualify as reorganizations (for tax purposes), the acquiree
Stockholders must receive voting common stock of the acquired. FALSE
41. There are different required levels of stock ownership in the acquiree for the three different
types of reorganizations for tax purposes. TRUE
42. One important benefit in a business combination is any net operating loss carry forward that
might exist and be available to the acquirer. FALSE
43. Which of the following types of business combinations typically occurs when management is
tempting to monopolize a particular industry?
a. Horizontal Combination
b. Vertical Combination
c. Conglomerate Combination
d. Market domination can be the goal of any type of combination
44. Horizontal business combinations occur when one entity purchases which of the following?
a. A supplier
b. A customer
c. A competitor
d. None of the above
45. Horizontal business combinations help sales increase by all but which of the following?
a. Entering new product markets
b. Taking control of a distribution system
c. Increasing production capacity
d. Expanding into new geographic regions
46. Which of the following types of business combinations typically occurs when management is
attempting to improve the efficiency of operations?
a. Horizontal combination
b. Vertical combination
c. Conglomerate combination
d. Improved efficiency can be the goal of any type of combination
47. A vertical combination occurs when one entity acquires another entity which has the following
characteristic(s)?
a. The acquiree purchases the acquirer’s outputs
b. The acquiree is a competitor of the acquirer
c. The acquiree supplies raw materials to the acquirer
d. Either a. or c.
48. Which of the following is a vertical combination?
a. A combination where the two entities are unrelated
b. A combination where the two entities are competitors in the same industry
c. A combination where the two entities have a potential buyer/seller relationship
d. None of the above describes a vertical
49. Which of the following types of business combinations typically occurs when management is
attempting to diversify its investment?
a. Horizontal combination
b. Vertical combination
c. Conglomerate combination
d. Diversification can be the goal of any type of combination
50. Management acquires a business in a tangentially related industry to the current business.
What form of business combination is accomplished?
a. Vertical combination
b. Conglomerate combination
c. Mega combination
d. Horizontal combination
51. One reason for conglomerate combinations is that management has become more aware that
it helps accomplish which of the following?
a. It helps increase income stability provided by diversifying the asset base of an
entity
b. It helps increase market share in the industry
c. It helps assure a constant supply of raw materials
d. A conglomerate combination helps accomplish all three
52. Business combinations that result in one dominant company in an industry are said to have
formed which of the following?
a. Pure competition
b. Monopoly
c. Oligopoly
d. Free market
53. The business enterprises that enter into a business combination are termed the:
a. Merging Companies
b. Joining Companies
c. Constituent Companies
d. Combiner Companies
54. When an offer is made to acquire a company and the acquiree management supports the
offer, the offer is called which of the following?
a. Friendly takeover
b. Tender offer
c. Hostile takeover
d. Defensive measure
55. The defensive maneuver where a company buys stock from a potential acquirer at a premium
over the market price is called which of the following?
a. White knight
b. Shark repellent
c. Greenmail
d. Sale of the crown jewels
56. The defensive maneuver where a company seeks to be acquired by a company perceived to
be a better match than the company making an offer to buy the potential acquiree is called
which of the following?
a. Poison pill
b. White knight
c. Golden parachutes
d. Pac-man defense
57. Company A makes a hostile take-over bid for control of Company B. In response, Company B
makes a counteroffer to purchase shares from Company A's shareholders. Which of the
following best describes Company B's response?
a. Pac-man defense
b. Selling the crown jewels
c. Poison pill
d. A hostile defense
58. Company A has made an offer to purchase all of the outstanding shares of Company B for P10
per share (the current market value of the shares). In response to Company A's offer, the
shareholders of Company B were given rights to purchase additional shares at P8 per share.
Which of the following tactics was employed by Company B to prevent Company A from
acquiring control of Company B?
a. Pac-man defense
b. Selling the crown jewels
c. Poison pill
d. A reverse-takeover
59. What is the term used for the defensive maneuver where management of a potential acquiree
sells desirable assets to reduce the company's value?
a. Sale of the crown jewels
b. Scorched earth defense
c. Pac-man defense
d. Greenmail
60. Shark repellent is a term for administrative measures that may make a hostile takeover more
difficult. Which of the following is not a form of shark repellent?
a. Staggering board of director terms
b. Residency requirement for board members
c. Issuance of convertible preferred stock that converts into common stock of the
acquirer if a takeover is accomplished
d. A supermajority vote is required to approve an acquisition
61. Defensive maneuvers can be internal to the potential acquiree (management or stockholders)
or may involve activities external to the acquiree. Which of the following is, not an internal
defensive maneuver?
a. Residency requirement for board members
b. Golden parachutes
c. Pacman defense
d. A supermajority vote is required to approve an acquisition
62. Able Ltd. offers to buy shares from the existing shareholders of Wei Co. at a premium price.
The current management and board of directors of Wei have let the Wei shdreholders know
that they do not approve of this. This is an example of a(n)?
a. open market purchase
b. hostile takeover
c. poison pill strategy
d. reverse takeover
63. Control over an acquiree can be attained through which of the following?
a. Acquisition of the acquiree assets
b. Acquisition of the acquiree stock
c. Either acquisition of the acquiree assets or stock
d. Neither acquisition of the acquiree assets or stock
64. In an acquisition of assets, the acquirer must give up which of the following?
a. Cash
b. Other assets
c. Liabilities
d. Any of the above can be given
65. In an acquisition where there is an exchange of assets for assets, how does the value of the
acquiree net assets change?
a. The net assets increase
b. The net assets decrease
c. There is no change in net assets
d. The net assets may increase, decrease or remain the same
66. In an acquisition where there is an exchange of assets for assets, how does the ownership
structure of the acquiree change?
a. There is no change in the acquiree ownership structure
b. The acquirer stockholders become the acquiree stockholders
c. The acquirer and acquiree stockholders share ownership of the acquire
d. It is not possible to determine if there is a change in the acquiree ownership structure
67. In an acquisition where there is an exchange of assets for assets, how does the ownership
structure of the acquirer change?
a. There is no change in the acquiree ownership structure
b. The acquirer stockholders become the acquiree stockholders
c. The acquirer and acquiree stockholders share ownership of the acquire
d. It is not possible to determine if there is a change in the acquiree ownership structure
68. In an acquisition where there is an exchange of stock (acquirer) for assets (acquiree), how
does the value of the acquiree net assets change?
a. The net assets increase
b. The net assets decrease
c. There is no change in net assets
d. The net assets may increase, decrease or remain the same
69. In an acquisition where there is an exchange of stock (acquirer) for assets (acquiree), how
does the ownership structure of the acquiree change?
a. There is no change in the acquirer ownership structure
b. The acquirer stockholders become the acquiree stockholders
c. The acquiree stockholders as individuals become owners of the acquirer
d. It is not possible to determine if there is a change in the acquirer ownership structure
70. In an acquisition where there is an exchange of stock (acquirer) for assets (acquiree), how
does the ownership structure of the acquirer change?
a. There is no change in the acquirer ownership structure
b. The acquiree (company) becomes a stockholder of the acquire
c. The acquiree stockholders as individuals become owners of the acquirer
d. It is not possible to determine if there is a change in the acquirer ownership structure
71. Control over acquiree assets is attained in a business combination. Indirect control is attained
in which type of exchange?
a. Assets for assets
b. Stock (acquirer) for assets (acquiree)
c. Stock for stock
d. Either b or c
72. Which of the following forms of business combination is not subject to laws specific to business
combinations?
a. Asset for asset acquisition
b. Statutory merger
c. Statutory consolidation
d. All three are subject to state laws
73. Which of the following is not a true statement with regard to a statutory merger?
a. One entity continues to exist
b. One entity ceases to exist
c. The name of the new entity is not the same as either of the entities
d. All of the above are true statements with regard to a statutory merger
74. Which of the following is not true with regard to the statutory consolidation form of business
combination?
a. A new corporation must be formed
b. Control of the net assets of the combining entities must be acquired by the new entity
c. The net assets of the combining entities must be acquired with assets of the new
corporation
d. The combining entities both cease to exist after the combination
75. Following the completion of a business combination in the form of a statutory consolidation,
what is the balance in the new corporation's Retained Earnings account?
a. The acquirer Retained Earnings account balance
b. The acquiree Retained Earnings account balance
c. Zero
d. The sum of the acquirer and acquiree Retained Earnings account balances
76. Which of the following is not true with regard to a business combination accomplished in the
form of a stock acquisition?
a. Two companies remain in existence after the combination
b. A parent-subsidiary relationship is said to exist
c. Consolidated financial statements are normally required
d. All of the above statements are true
77. Which of the following contingencies may change the cost of an acquisition?
a. Future acquiree earnings
b. Future value of acquiree stock
c. Future value of acquirer stock
d. Future value of acquirer debt
78. To qualify as a reorganization (for tax purposes), a business must meet which of the following
criteria?
a. Acquiree stockholders continue an indirect ownership interest in the acquire
b. The acquirer must continue the acquiree business or employ a significant portion of the
acquiree net assets in an ongoing business
c. The combination must be for a valid business purpose
d. All of the above criteria are required for a combination to qualify as a
reorganization
79. Which of the following is not a business combination?
a. Statutory amalgamation
b. Joint venture
c. A company's purchase of 100% of another company's net assets
d. A company's purchase of 80% of another company's voting shores
80. Under PFRS 3, Business Combinations, which method must be used to account for business
combinations?
a. Purchase method
b. Pooling-of-interests method
c. Acquisition method
d. New entity method

81. After an exchange of shares in a business combination, each group of shareholders held 50%
of the voting rights. Which of the following factors should be considered in determining the
acquirer?
a. Head office location
b. Composition of the board of directors
c. If there are material transactions between the combining companies
d. which company initiated the combination
82. Perez Co. plans to acquire Roo Co. Roo has substantial depreciable assets that have fair
values in excess of their book values. Considering only the income tax impact, which of the
following statements is true?
a. Perez would prefer to purchase Roo's assets and Roo would prefer to sell its shares
to Perez.
b. Perez would prefer to purchase Roo's shares and Roo would prefer to sell its assets to
Perez.
c. Both Perez and Roo would prefer Perez to purchase Roo's shares.
d. Both Perez and Roo would prefer Perez to purchase Roo's assets.
83. Perez Co. acquired Roo Co. in a business combination. Roo issued new shares to Perez's
shareholders in exchange for their outstanding shares. What type of share exchange is this?
a. Direct' exchange
b. Indirect exchange
c. Hostile takeover
d. Reverse takeover
84. Perez Co. acquired Roo Co. in a business combination. Perez issued new shares to Roo's
shareholders in exchange for their outstanding shares. What type of share exchange is this?
a. Direct' exchange
b. Indirect exchange
c. Hostile takeover
d. Reverse takeover
85. Ha Ltd. and Hee Ltd. exchanged shares in a business combination. After the s are exchange,
each company held the same number of voting shares. Which of the following statements is
true?
a. The company with the highest net assets is considered the acquirer.
b. The companies must ask the courts to decide which company is the acquirer
c. A number of factors must be considered to determine which company is the acquirer.
d. There is no acquirer as this is not a proper business combination.
86. How should the transaction costs of issuing shares in an acquisition be recognized?
a. Expensed
b. Capitalized as part of the cost of the shares
c. Deducted in total from shareholders' equity
d. Deducted from shareholders equity, net of related income tax benefits
87. How should the cost of issuing debt in an acquisition be recognized?
a. Expensed
b. Amortized over the term of the debt
c. Deducted from the value of the debt
d. Deducted from shareholders' equity
88. How accounting fees for an acquisition should be treated?
a. Expensed in the period of acquisition
b. Capitalized as part of the acquisition cost
c. Deferred and amortized
d. Deferred until the company is disposed of or wound-up

89. Which of the following is not a reason why a private enterprise may be acquired as a bargain
purchase?
a. It is a family business and the next generation does not want fo to continue the
business.
b. The owner has health problems and does not have a successor.
c. The business only has equity financing and hos no debt financing.
d. The owner is no longer interested in the business.
90. Which of the following statements about a bargain purchase is true?
a. It is reported on the financial statements as an "excess of fair value over cost of assets
acquired".
b. It is reported as a deferred credit on the financial statements called negative goodwill.
c. Assets and liabilities of the acquired company are reported at net book value
d. Assets and liabilities of the acquired company are reported at their fair value.
91. What is the most common valuation method used for intangible assets?
a. Market-based
b. Income-based
c. Cost-based
d. Amortized cost
92. How should negative goodwill be shown on the consolidated financial statements of the
acquirer?
a. As a gain on the statement of comprehensive income
b. As a loss on the statement of comprehensive income
c. As a liability on the statement of financial position
d. As a separate amount under shareholders' equity on the statement of financial position
93. Raj Co. acquired all of Event .Ltd.'s common shares. At the date of acquisition, Event had
P80,000 of goodwill resulting from its acquisition of Baker Ltd. a few years ago. At Raj's date of
acquisition, what is the proper treatment of Event's P80,000 of goodwill?
a. Event's goodwill ls an identifiable asset and should be included as part of Raj’s
purchase price discrepancy (PPD).
b. Event's goodwill is an identifiable asset but should not be included, as art of Raj’s
PPD.
c. Event's goodwill is not an identifiable asset but should be included as part of RG PPD.
d. Event's goodwill is not an identifiable asset and should not be included as part or Raj's
PPD.
94. Which of the following does NOT constitute a Business Combination under IFRS 3?
a. A Corp purchases the net assets of B Corp.
b. A Corp enters into a Joint Venture with B Corp.
c. A Corp acquires 51% of B Corp's voting shares for P1,000,000 ín Cash.
d. A Corp acquires 51% of B Corp's voting shares for future considerations
95. What is a statutory merger?
a. A merger approved by the Securities and Exchange Commission.
b. An acquisition involving the purchase of both stock and assets.
c. A takeover completed within one year of .he. initial tender offer.
d. A business combination in which only one company continues to exist as a legal
entity.
96. Statutory merger is a(n)?
a. Business combination in which only one of the two companies continues to exist
as a legal corporation
b. Business combination in which both companies continues to exist
c. Acquisition of a competitor
d. Acquisition of a supplier or a customer
e. Legal proposal to acquire outstanding shares of the target's stock
97. Liabilities assumed in an acquisition will be valued at the?
a. estimated fair value.
b. historical book value.
c. Current replacement cost.
d. present value using market interest rates
98. In reference to the IASB disclosure requirements, which of the following is correct?
a. Information related to several minor acquisitions may not be combined.
b. firms are not required to disclose the business purpose for a combination
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 are correct.
99. Goodwill arising from business combination is:
a. charged to Retained Earnings after the acquisition is completed.
b. amortized over 40 years or its useful life, whichever is longer.
 c. amortized over 40 years or its useful life, whichever is shorter.
d. never amortized.
100. In reference to international accounting for goodwill, which of the following statements is
correct?
a. U.S. companies have complained that past accounting rules for amortizing goodwill
placed them at a disadvantage in competing against foreign
b. Some foreign countries permitted the immediate write-off of goodwill to stockholders
c. The IA9B and the FASB are working to eliminate differences in accounting for business
equity combinations.
d. All of the above are correct
101. In recording acquisition costs, which of the following procedures is correct?
a. Registration costs are expensed, and not charged against the fair value of the
b. Indirect costs are charged against the fair value of the securities issued.
c. Consulting fees are expensed.
d. None of the above procedures is correct
102. Which one of the following statements is incorrect?
a. In an asset acquisition, the books of the acquired company are closed out and its assets
and liabilities are transferred to the books of the acquirer.
b. In many cases, stock acquisitions entail lower total cost than asset acquisitions.
c. Regulations pertaining to one of the firms do not automatically extend to the entire
merged entity in a stock acquisition.
d. A Stock acquisition occurs when one corporation pays cash, issues stock, or
issues debt for all or part of the voting stock of another company: and the
acquired company dissolves and ceases to exist as a separate legal entity.
103. Which of the following can be used as consideration in a stock acquisition?
a. Cash
b. Debt
c. Stock
d. Any of the above may be used
104. Slocum Corporation and Merton Company, both publicly owned companies, are planning a
merger, with Slocum being the survivor. Which of the following is a requirement of the
merger?
a. The Securities and Exchange Commission must approve the merger
b. The common stockholders of Merton must receive common stock of slocum
c. The creditors of Merton must approve the merger
d. The boards of directors of both Slocum and Merton must approve the merger
105. PFRS 3 requires that all business combinations be accounted for using?
a. The pooling of interests method.
b. The acquisition method.
c. Either the acquisition or the pooling of interests methods.
d. Neither the acquisition nor the pooling of interests methods.

106. Under the acquisition method, if the fair values of identifiable net assets exceed the value
implied by the purchase price of the acquired company, the excess should be?
a. accounted for as goodwill.
b. allocated to reduce current and long-lived assets.
c. allocated to reduce current assets and classify any remainder as an extraordinary gain
 d. allocated to reduce any previously recorded goodwill on the seller's books and
classify any remainder as an ordinary gain.
107. PFRS 3 requires that the acquirer disclose each of the following for each material business
combination except the?
a. name and a description of the acquiree acquired.
b. percentage of voting equity instruments acquired.
c. fair value of the consideration transferred.
d. each of the above is a required disclosure
108. When the acquisition price of an acquired firm is less than the fair value of the identifiable
net assets, all of the following are recorded at fair value except?
a. Assumed liabilities.
b. Current assets.
c. Long-lived assets.
d. Each of the above is recorded at fair value

109. Under PFRS 3:

a. both direct and indirect costs are to be capitalized.
b. both direct and indirect costs are to be expensed.
c. direct costs are to be capitalized and indirect costs are to be expense
d. indirect Costs are to be capitalized and direct costs are to be expensed
110. A business combination is accounted for properly as an acquisition. Which of the following
expenses related to effecting the business combination should enter into the determination
of net income of the combined corporation for the period in which the expenses are
incurred?
Security Overhead allocated
issue costs to the merger
a. Yes Yes
b. Yes No
c. No Yes
d. No No

111. In a business combination, which of the following costs are assigned to the valuation of the
security?
Professional/ Security
consulting fees issue cost
a. Yes Yes
b. Yes No
c. No Yes
d. No No
112. Parental Company and Sub Company were combined in an acquisition transaction. Parental
was able to acquire Sub at a bargain price. The sum of the fair values of identifiable assets
acquired less the fair value of liabilities assumed exceeded the cost to Parental. After
eliminating previously recorded goodwill; there was still some "negative goodwill." Proper
accounting treatment by Parental is to report the amount as?
a. paid-in capital.
b. a deferred credit, which is amortized.
c. an ordinary gain.
 d. an extraordinary gain.
113. With an acquisition, direct and indirect expenses are?
a. expensed in the period incurred.
b. capitalized and amortized over a discretionary period
c. considered a part of the total cost of the acquired company.
d. charged to retained earnings when incurred.

114. In a business combination accounted for as an acquisition, how should the excess of fair
value of net assets acquired over the consideration paid be treated?
a. Amortized as a credit to income over a period not to exceed forty years.
b. Amortized as a charge to expense over a period not to exceed forty years.
c. Amortized directly to retained earnings over a period not to exceed forty years.
d. Recorded as an ordinary gain.
115. If the value implied by the purchase price of an acquired company exceeds the fair values of
identifiable net assets, the excess should be?
a. allocated to reduce any previously recorded goodwill and classify any remainder as
an ordinary gain.
b. allocated to reduce current and long-lived assets.
c. allocated to reduce long-lived assets.
d. allocated goodwill
116. P Co. issued 5,000 shares of its common stock, valued at P200,000, to the former
shareholders of Company two years after S Company was acquired in an all-stock
transaction. The additional shares were issued because P Company agreed to issue
additional shares of common stock if the average post combination earnings over the next
two years exceeded P500,000. P Company will treat the issuance of the additional shares
as a (decrease in)?
a. retained earnings.
b. goodwill.
c. paid-in capital.
d. non-current liabilities of S Company assumed by P Company.

117. The fair value of assets and liabilities of the acquired entity is to be reflected in the financial
statements of the combined entity. When the acquisition takes place over a period of time
rather than all at once, at what time is the fair value of the assets and liabilities of the
acquired entity determined?
a. the date the interest in the acquiree was acquired.
b. the date the acquirer obtains control of the acquire
c. the date of acquisition of the largest portion of the interest in the acquiree.
d. the date of the financial statements.

118. Under PFRS 3, what value of the assets and liabilities is reflected in the financial statements
on the acquisition date of a business combination?
a. Carrying value
b. Fair value
c. Book value
d. Average value
119. What is the appropriate accounting treatment for the value assigned to in-process research
and development acquired in a business combination?
 a. Expense upon acquisition.
b. Capitalize as an asset.
c. Expense if there is no alternative use for the assets used in the research and
development and technological feasibility has yet to be reached.
d. Expense until future economic benefits become certain and then capitalize as an
asset.
120. An acquired entity has a long-term operating lease for an office building used for central
management. The terms of the lease are very favorable relative to current market rates.
However, the lease prohibits subleasing or any other transfer of rights. In its financial
statements, the acquiring firm should report the value assigned to the lease contract as?
a. An intangible asset under the contractual- legal criterion.
b. A part of goodwill.
c. An intangible asset under the separability criterion.
d. A building.

121. Under PFRS 3, when is a gain recognized in consolidating financial information?

a. When any bargain purchase is treated.
b. In a combination created in the middle of a fiscal year.
c. In an acquisition when the value of all assets and liabilities cannot be determined.
d. When the amount of a bargain purchase exceeds the value of the applicable
expense(other than certain exceptions) held by the acquired company.
122. Company B acquired the net assets of Company S in exchange for cash. The acquisition
price exceeds the fair value of the net assets acquired. How should Company B determine
the amounts to be reported for the plant and equipment, and for long-term debt of the
acquired Company S?
Plant and Equipment Long-Term Debt
a. Fair Value S’s carrying amount
b. Fair Value Fair Value
c. S’s carrying amount Fair Value
d. S’s carrying amount S’s carrying amount
123. Goodwill represents the excess cost of an acquisition over the?
a. sum of the fair values assigned to intangible assets less liabilities assumed
b. sum of the fair values assigned to tangible and identifiable intangible assets
acquired less liabilities assumed
c. sum of the fair values assigned to intangibles acquired less liabilities
d. book value of an acquired company
124. When an acquisition of another company occurs, IASB recommends disclosing all of the
following EXCEPT:
a. goodwill assigned to each reportable segment.
b. information concerning contingent consideration including a description of the and the
range of outcomes.
c. results of operations for the current period if both companies had remained
separate.
d. a qualitative description of factors that make up the goodwill recognized

125. Separately identified intangible assets are accounted for by amortizing:

a. exclusively by impairment testing
b. based upon the pattern that reflects the benefits conveyed by the asset
 c. over the useful economic life less residual value using only the straight line method
d. over a period not to exceed a minimum of 40 yrs
126. Acquisition costs such as the fees of accountants and lawyers that were necessary to
negotiate and consummate the purchase are?
a. recorded as a deferred asset and amortized over a period not to exceed 15 years.
b. expensed if immaterial but capitalized and amortized it over 2% of the acquisition
price.
c. expensed in the period of the purchase.
d. included as part of the price paid for the company purchased.
127. Which of the following income factors should not be factored into an estimation of goodwill?
a. sales for the period
b. income tax expense
c. extraordinary items
d. cost of goods sold