ME-BUSCMB

Points:
29/40
1.Beauty Co. paid ₱150,000 for its 75% interest in Beast Co. Beauty
elected to value NCI at fair value. Beast’s net identifiable assets
approximated their fair values at acquisition date. The acquisition
resulted in a goodwill attributable to NCI of ₱10,000. Since the
acquisition date, Beast has made accumulated profits of ₱200,000.
There have been no changes in Beast’s share capital since acquisition
date. The group determined that goodwill has been impaired by
₱8,000. A summary of the individual statements of financial positions
of the entities as at the end of reporting period is shown below: Beauty
Co. Beast Co. Total assets 1,000,000 500,000 Total liabilities 200,000
120,000 Share capital 300,000 100,000 Retained earnings 500,000
280,000 Total liabilities and equity 1,000,000 500,000 How much is the
consolidated total equity?
(1/1 Points)
872,000
998,000
1,036,000
1,047,000
2.Beauty Co. paid ₱150,000 for its 75% interest in Beast Co. Beauty
elected to value NCI at fair value. Beast’s net identifiable assets
approximated their fair values at acquisition date. The acquisition
resulted in a goodwill attributable to NCI of ₱10,000. Since the
acquisition date, Beast has made accumulated profits of ₱200,000.
There have been no changes in Beast’s share capital since acquisition
date. The group determined that goodwill has been impaired by
₱8,000. A summary of the individual statements of financial positions
of the entities as at the end of reporting period is shown below: Beauty
Co. Beast Co. Total assets 1,000,000 500,000 Total liabilities 200,000
120,000 Share capital 300,000 100,000 Retained earnings 500,000
280,000 Total liabilities and equity 1,000,000 500,000 How much is the
consolidated retained earnings?
(0/1 Points)
644,000
702,000
556,000
 628,000
3.Should the following costs be included in the consideration
transferred in a business combination, according to PFRS 3 Business
Combinations? I. Costs of maintaining an acquisitions department. II.
Fees paid to accountants to effect the combination.
(1/1 Points)
No, No
No, Yes
Yes, No
Yes, Yes
4.Intercompany profit elimination entries in consolidation working
papers are prepared in order to:
(0/1 Points)
Nullify the effect of intercompany transactions on consolidated statements.
Defer intercompany profits between majority and minority interests.
Allocate unrealized profits between majority and minority interests.
Reduce consolidated income
5.The management of an entity is unsure how to treat a restructuring
provision that they wish to set up on the acquisition of another entity.
Under PFRS 3, the treatment of this provision will be
(1/1 Points)
A charge in the income statement in the post-acquisition period.
To include the provision in the allocated cost of acquisition.
To provide for the amount and, if the provision is overstated, to release the excess
to the income statement in the post-acquisition period.
To include the provision in the allocated cost of acquisition if the acquired entity
commits itself to a restructuring within a year of acquisition.
6.Zest Co. owns 100% of Cinn, Inc. On January 2, 1999, Zest sold
equipment with an original cost of ₱80,000 and a carrying amount of
₱48,000 to Cinn for ₱72,000. Zest had been depreciating the
equipment over a five-year period using straight-line depreciation with
no residual value. Cinn is using straight-line depreciation over three
years with no residual value. In Zest's December 31, 1999,
consolidating worksheet, by what amount should depreciation expense
be decreased?
(1/1 Points)
₱0
 ₱8,000
₱16,000
₱24,000
7.On September 1, 2019, Pig Co. acquired 75% interest in Piglet Co. On
this date, Piglet's net identifiable assets have a carrying amount of
₱180,000, which approximates fair value. In December 2019, Piglet
sold goods to Pig for ₱81,000. Piglet had marked up these goods by
50% based on cost. One-third of these goods remain unsold at year-
end. The group assessed that there is no impairment loss on goodwill
for the current year. The individual statements of profit or loss of the
entities for the year ended December 31, 2019 are shown below: Pig
Co. Piglet Co. Revenue 1,000,000 720,000 Cost of sales (400,000)
(300,000) Gross profit 600,000 420,000 Distribution costs (200,000)
(100,000) Administrative costs (80,000) (45,000) Profit before tax
320,000 275,000 Income tax expense (96,000) (95,000) Profit after tax
224,000 180,000 All of Piglet’s income and expenses (including profit
from intercompany sale) were earned and incurred evenly during the
year. How much is the profit attributable to Owners of the parent NCI
(0/1 Points)
262,000 13,000
224,000 60,000
262,250 12,750
256,250 45,750
8.This type of business combination occurs when, for example, a
private entity decides to have itself “acquired” by a smaller public
entity in order to obtain a stock exchange listing.
(1/1 Points)
Step acquisition
Rewind acquisition
Reverse acquisition
Stock acquisition
9.On September 1, 2019, Pig Co. acquired 75% interest in Piglet Co. On
this date, Piglet's net identifiable assets have a carrying amount of
₱180,000, which approximates fair value. In December 2019, Piglet
sold goods to Pig for ₱81,000. Piglet had marked up these goods by
50% based on cost. One-third of these goods remain unsold at year-
end. The group assessed that there is no impairment loss on goodwill
for the current year. The individual statements of profit or loss of the
entities for the year ended December 31, 2019 are shown below: Pig
Co. Piglet Co. Revenue 1,000,000 720,000 Cost of sales (400,000)
(300,000) Gross profit 600,000 420,000 Distribution costs (200,000)
(100,000) Administrative costs (80,000) (45,000) Profit before tax
320,000 275,000 Income tax expense (96,000) (95,000) Profit after tax
224,000 180,000 All of Piglet’s income and expenses (including profit
from intercompany sale) were earned and incurred evenly during the
year. How much is the consolidated gross profit?
(1/1 Points)
689,000
731,000
798,000
792,000
10.On January 1, 2019, Carrie Co., and , Unli Inc. entered into a
business combination effected through exchange of equity
instruments. The combination resulted to Carrie obtaining 100%
interest in Unli. Both of the combining entities are publicly listed. As of
this date, Carrie’s shares have a quoted price of ₱400 per share. Carrie
Co. recognized goodwill of ₱300,000 on the business combination. No
acquisition-related costs were incurred. Additional selected information
at acquisition date is shown below: Carrie Co. Combined entity (before
acquisition) (after acquisition) Share capital 2,400,000 2,800,000 Share
premium 1,200,000 4,800,000 Totals 3,600,000 7,600,000 What is the
par value per share of the shares issued?
(1/1 Points)
10
40
12
32
11.On January 1, 2019, Beam Co. acquired all of the identifiable assets
and assumed all of the liabilities of Talent, Inc. by paying cash of
₱4,000,000. On this date, the identifiable assets acquired and liabilities
assumed have fair values of ₱6,400,000 and ₱3,600,000, respectively.
As of January 1, 2019, Beam holds a building and a patent which are
being rented out to Talent, Inc. under operating leases. Beam has
determined that the terms of the operating lease on the patent
compared with market terms are unfavorable. The fair value of the
differential is estimated at ₱80,000. How much is the goodwill (gain on
bargain purchase)?
(0/1 Points)
1,080,000
1,280,000
1,120,000
1,200,000
12.Beauty Co. paid ₱150,000 for its 75% interest in Beast Co. Beauty
elected to value NCI at fair value. Beast’s net identifiable assets
approximated their fair values at acquisition date. The acquisition
resulted in a goodwill attributable to NCI of ₱10,000. Since the
acquisition date, Beast has made accumulated profits of ₱200,000.
There have been no changes in Beast’s share capital since acquisition
date. The group determined that goodwill has been impaired by
₱8,000. A summary of the individual statements of financial positions
of the entities as at the end of reporting period is shown below: Beauty
Co. Beast Co. Total assets 1,000,000 500,000 Total liabilities 200,000
120,000 Share capital 300,000 100,000 Retained earnings 500,000
280,000 Total liabilities and equity 1,000,000 500,000 How much is the
NCI in net assets?
(0/1 Points)
95,000
89,000
103,000
112,000
13.Beauty Co. paid ₱150,000 for its 75% interest in Beast Co. Beauty
elected to value NCI at fair value. Beast’s net identifiable assets
approximated their fair values at acquisition date. The acquisition
resulted in a goodwill attributable to NCI of ₱10,000. Since the
acquisition date, Beast has made accumulated profits of ₱200,000.
There have been no changes in Beast’s share capital since acquisition
date. The group determined that goodwill has been impaired by
₱8,000. A summary of the individual statements of financial positions
of the entities as at the end of reporting period is shown below: Beauty
Co. Beast Co. Total assets 1,000,000 500,000 Total liabilities 200,000
120,000 Share capital 300,000 100,000 Retained earnings 500,000
280,000 Total liabilities and equity 1,000,000 500,000 How much is the
goodwill at the end of reporting period?
(0/1 Points)
17,000
15,000
 13,000
d. 9,000
14.In a business combination, an acquirer's interest in the fair value of
the net assets acquired exceeds the consideration transferred in the
combination. Under PFRS 3 Business Combinations, the acquirer should
(1/1 Points)
recognize the excess immediately in profit or loss
recognize the excess immediately in other comprehensive income
reassess the recognition and measurement of the net assets acquired and the
consideration transferred, then recognize any excess immediately in profit or loss
d. reassess the recognition and measurement of the net assets acquired and the
consideration transferred, then recognize any excess immediately in other
comprehensive income
15.The “excess of the acquirer’s interest in the net fair value of
acquiree’s identifiable assets, liabilities, and contingent liabilities over
cost” (formerly known as negative goodwill) should be
(1/1 Points)
Amortized over the life of the assets acquired
Reassessed as to the accuracy of its measurement and then recognized immediately
in profit or loss.
Reassessed as to the accuracy of its measurement and then recognized in retained
earnings
Carried as a capital reserve indefinitely
16.A “gain on a bargain purchase” is
(1/1 Points)
Recognized in profit or loss in the year of acquisition
Amortized in profit or loss over the lower of the legal life and the estimated useful
life
Recognized in profit or loss in the year of acquisition only after reassessment of the
assets acquired and liabilities assumed in the business combination
Any of these
17.Beauty Co. paid ₱150,000 for its 75% interest in Beast Co. Beauty
elected to value NCI at fair value. Beast’s net identifiable assets
approximated their fair values at acquisition date. The acquisition
resulted in a goodwill attributable to NCI of ₱10,000. Since the
acquisition date, Beast has made accumulated profits of ₱200,000.
There have been no changes in Beast’s share capital since acquisition
date. The group determined that goodwill has been impaired by
₱8,000. A summary of the individual statements of financial positions
of the entities as at the end of reporting period is shown below: Beauty
Co. Beast Co. Total assets 1,000,000 500,000 Total liabilities 200,000
120,000 Share capital 300,000 100,000 Retained earnings 500,000
280,000 Total liabilities and equity 1,000,000 500,000 How much is the
fair value assigned to NCI at date of acquisition?
(0/1 Points)
112,000
98,000
76,000
55,000
18.When consolidating the financial statements of a parent and its
subsidiary, which of the following is eliminated?
(1/1 Points)
Goodwill
NCI in net assets
Investment in subsidiary
All of these
19.Bright Company acquired Smart Company in a business
combination. Bright Company has been leasing out a building to Smart
years before the business combination. If the terms of the operating
lease relative to market terms is favorable, Bright shall
(1/1 Points)
Recognized intangible asset
Recognized an asset
Recognized a liability
Not recognizing anything
20.1st Consolidated financial statements must be prepared using
uniform accounting policies. 2nd The non-controlling interest in the net
assets of subsidiaries may be shown by way of note to the
consolidated statement of financial position.
(1/1 Points)
False, false
False, true
True, false
False, false
21.On January 1, 2019, Carrie Co., and , Unli Inc. entered into a
business combination effected through exchange of equity
instruments. The combination resulted to Carrie obtaining 100%
interest in Unli. Both of the combining entities are publicly listed. As of
this date, Carrie’s shares have a quoted price of ₱400 per share. Carrie
Co. recognized goodwill of ₱300,000 on the business combination. No
acquisition-related costs were incurred. Additional selected information
at acquisition date is shown below: Carrie Co. Combined entity (before
acquisition) (after acquisition) Share capital 2,400,000 2,800,000 Share
premium 1,200,000 4,800,000 Totals 3,600,000 7,600,000 How many
shares were issued by Carrie Co. in the business combination?
(1/1 Points)
40,000
20,000
12,000
10,000
22.A British parent entity uses the revaluation model to measure its
property, but a Philippine subsidiary uses the cost model. The
Philippine subsidiary’s directors find the revaluation model too costly to
implement. In the consolidated financial statements, is the group
allowed to measure the Philippine subsidiary’s property under the cost
model?
(0/1 Points)
Yes, the British parent’s property shall be adjusted to conform to the subsidiary’s
accounting policy of cost model
No, the Philippine subsidiary’s property shall be adjusted to conform to the group’s
accounting policy of revaluation model
Yes, both models will be reflected in the consolidated financial statements, but this
fact must be disclosed in the notes
None of these, the property is eliminated in the consolidated financial statements.
23.On September 1, 2019, Pig Co. acquired 75% interest in Piglet Co.
On this date, Piglet's net identifiable assets have a carrying amount of
₱180,000, which approximates fair value. In December 2019, Piglet
sold goods to Pig for ₱81,000. Piglet had marked up these goods by
50% based on cost. One-third of these goods remain unsold at year-
end. The group assessed that there is no impairment loss on goodwill
for the current year. The individual statements of profit or loss of the
entities for the year ended December 31, 2019 are shown below: Pig
Co. Piglet Co. Revenue 1,000,000 720,000 Cost of sales (400,000)
(300,000) Gross profit 600,000 420,000 Distribution costs (200,000)
(100,000) Administrative costs (80,000) (45,000) Profit before tax
320,000 275,000 Income tax expense (96,000) (95,000) Profit after tax
224,000 180,000 All of Piglet’s income and expenses (including profit
from intercompany sale) were earned and incurred evenly during the
year. How much is the consolidated profit?
(0/1 Points)
275,000
284,000
295,000
302,000
24.PFRS 3 requires that the contingent liabilities of the acquired entity
should be recognized in the balance sheet at fair value. The existence
of contingent liabilities is often reflected in a lower purchase price.
Recognition of such contingent liabilities will
(1/1 Points)
Decrease the value attributed to goodwill, thus decreasing the risk of impairment of
goodwill.
Decrease the value attributed to goodwill, thus increasing the risk of impairment of
goodwill
Increase the value attributed to goodwill, thus decreasing the risk of impairment of
goodwill.
Increase the value attributed to goodwill, thus increasing the risk of impairment of
goodwill.
25.Goodwill may be capitalized
(1/1 Points)
Only when it arises in a business combination
Only when it is created internally
Only when it is purchased
On any of these cases
26.L Corp. acquired control of W Corp. by purchasing stock in steps.
Which of the following regarding this type of acquisition is true?
(1/1 Points)
The cost of acquisition equals the amount paid for the previously held shares plus
the fair value of shares issued at the date of acquisition.
The previously held shares should be remeasured at fair value on the acquisition
date, and any gain on previously held shares should be included in other comprehensive
income for the period.
The previously held shares should be remeasured at fair value on the acquisition
date and the gain recognized in earnings of the period
 The acquisition cost includes only the newly issued shares measured at fair value on
the date of acquisition.
27.During the year, Rex Co. sold equipment to its subsidiary, Mutual
Co. at a gain. The equipment has a remaining useful life of 5 years.
Which of the following statements is true in the preparation of the
consolidated financial statements?
(1/1 Points)
The gain is recognized immediately
The gain is deferred and recognized only in the period the equipment is sold to
unrelated party.
The carrying amount of the asset and the related depreciation are adjusted
downwards
D. The carrying amount of the asset and the related depreciation are adjusted
upwards.
28.Where should non-controlling interests be presented in the
consolidated statement of financial position?
(1/1 Points)
Within the long-term liabilities
In between long-term liabilities and current liabilities
Within the parent shareholders’ equity
Within equity but separate from parent shareholders’ equity
29.Given the following information, how is goodwill from a business
combination computed under PFRS 3? A = Consideration transferred B
= Non-controlling interest in net assets of subsidiary C = Previously
held equity interest D = Fair value of net identifiable assets of
subsidiary % = Percentage of ownership acquired by the parent in the
subsidiary
(1/1 Points)
A+B+C-D
A – (D x %)
(A+C) – (D x %)
(A+B) – [(D x %) – B]

30.The method required under PFRS 3 to be used in accounting for

business combinations is
(1/1 Points)
 Purchase method
Buy method
Acquisition method
Combination method

31.The identifiable assets acquired and liabilities assumed in a

business combination are generally measured at
(1/1 Points)
Acquisition-date fair values
Fair value less costs to sell
Previous carrying amounts
Cost

32.On January 1, 2019, Carrie Co., and , Unli Inc. entered into a
business combination effected through exchange of equity
instruments. The combination resulted to Carrie obtaining 100%
interest in Unli. Both of the combining entities are publicly listed. As of
this date, Carrie’s shares have a quoted price of ₱400 per share. Carrie
Co. recognized goodwill of ₱300,000 on the business combination. No
acquisition-related costs were incurred. Additional selected information
at acquisition date is shown below: Carrie Co. Combined entity (before
acquisition) (after acquisition) Share capital 2,400,000 2,800,000 Share
premium 1,200,000 4,800,000 Totals 3,600,000 7,600,000 What is the
acquisition-date fair value of the net identifiable assets of Unli?
(0/1 Points)
3,700,000
3,200,000
2,800,000
2,400,000

33.On January 1, 2017, FORTITUDE Co. acquired 15% ownership

interest in ENDURANCE, Inc. for ₱400,000. The investment was
accounted for under PFRS 9. From 2017 to the end of 2019, FORTITUDE
recognized net fair value gains of ₱200,000. On January 1, 2020,
FORTITUDE acquired additional 60% ownership interest in ENDURANCE,
Inc. for ₱3,200,000. As of this date, FORTITUDE has identified the
following: a. The previously held 15% interest has a fair value of
₱720,000. b. ENDURANCE’s net identifiable assets have a fair value of
₱4,000,000. c. FORTITUDE elected to measure non-controlling interests
at the non-controlling interest’s proportionate share of ENDURANCE’s
identifiable net assets. The previously held interest was initially
classified as FVOCI. How much is the goodwill (gain on bargain
purchase)?
(1/1 Points)
200,000
420,000
920,000
540,000

34.A contingent liability assumed in a business combination

(1/1 Points)
Is not accounted for by the acquirer if the contingent liability has an improbable
outflow of economic resources
Is recognized even if it has an improbable outflow of economic resources for as long
as there is present obligation and the fair value of the obligation can be measured
reliably
Is recognized only if there is present obligation, probable outflow of economic
resources, and can be measured reliably
Not given
35.Are the following statements about an acquisition true or false,
according to PFRS 3 Business combinations? I. The acquirer should
recognize the acquiree's contingent liabilities if certain conditions are
met. II. The acquirer should recognize the acquiree's contingent assets
if certain conditions are met.
(1/1 Points)
False, False
False, True
True, False
True, True

36.Beauty Co. paid ₱150,000 for its 75% interest in Beast Co. Beauty
elected to value NCI at fair value. Beast’s net identifiable assets
approximated their fair values at acquisition date. The acquisition
resulted in a goodwill attributable to NCI of ₱10,000. Since the
acquisition date, Beast has made accumulated profits of ₱200,000.
There have been no changes in Beast’s share capital since acquisition
date. The group determined that goodwill has been impaired by
₱8,000. A summary of the individual statements of financial positions
of the entities as at the end of reporting period is shown below: Beauty
Co. Beast Co. Total assets 1,000,000 500,000 Total liabilities 200,000
120,000 Share capital 300,000 100,000 Retained earnings 500,000
280,000 Total liabilities and equity 1,000,000 500,000 How much is the
consolidated total assets?
(1/1 Points)
1,298,000
1,367,000
1,387,000
1,402,000

37.Which f the following statements is TRUE?

(1/1 Points)
Downstream and upstream sales affects the computation of the consolidated net
income and consolidated sales and cost of goods sold.
Amortization of excess affects the computation of consolidated operating expenses
In case of downstream sales, unrealized profits are changed to consolidated net
income and non controlling interest net income
Under the acquisition method of accounting for business combination, the
stockholder equity of any acquired company is eliminated in the working paper

38.Which one of the following reasons would not contribute to the

creation of negative goodwill?
(1/1 Points)
Errors in measuring the fair value of the acquiree’s net identifiable assets or the cost
of the business combination.
A bargain purchase
A requirement in an IFRS to measure net assets acquired at a value other than fair
value
 d. Making acquisitions at the top of a “bull” market for shares

39.Which of the following is not a valid condition that will exempt an

entity from preparing consolidated financial statements?
(0/1 Points)
The parent entity is a wholly owned subsidiary of another entity.
The parent entity’s debt or equity capital is not traded on the stock exchange.
The ultimate parent produces consolidated financial statements available for public
use that comply with PFRS.
The parent entity is in the process of filing its financial statements with a securities
commission

40.When NCI is measured at fair value,

(1/1 Points)
goodwill is attributed only to the owners of the parent
goodwill and its impairment, if any, are attributed to both the owners of the parent
and NCI
goodwill impairment is allocated only to the owners of the parent
goodwill is attributed only to the NCI