ALDERSGATE COLLEGE ADVANCED FINANCIAL ACCOUNTING AND REPORTING 2

(AACTG125.1)
SCHOOL OF BUSINESS MANAGEMENT AND ACCOUNTANCY

Exercise # 1 – Business Combination

Multiple Choice: THEORY
1. According to PFRS 3, it is a transaction or other event in which an acquirer obtains control of one
or more business.
a. Business combination c. business alliance
b. Business amalgamation d. all of these
2. This distinguish a business combination from other types of investment transactions.
a. Acquisition of assets c. obtaining of control
b. Acquisition of stocks d. all of these
3. A business combination can be affected through
a. Purchase of all of the assets and assumption of all of the liabilities of an acquiree by the acquirer.
b. Purchase of all or some of the voting shares of the acquiree, sufficient for the acquirer to obtain
control over the acquiree.
c. Acquisition of control without transfer of consideration
d. Any of these
4. After this type of business combination, the acquired entity ceases to exist as a separate legal or
accounting entity, The acquirer records in its accounting records the assets acquired and liabilities
assumed in the business combination.
a. Stock acquisition c. combination of mutual entities
b. Acquisition of control w/o transfer of consideration d. asset acquisition
5. It is a statutory type of combination which occurs when two or more companies merge into a single
entity which shall be one of the combining companies.
a. Merger b. consolidation c. stock acquisition d. mutual combination
6. It is a statutory type of combination which occurs when two or more companies consolidate into a
single entity which shall be the consolidated company.
b. Merger b. consolidation c. stock acquisition d. mutual combination
7. PFRS 3 requires a business combination to be accounted for using the?
a. Purchased method c. goodwill method
b. Acquisition method d. control method
8. The acquisition method requires which of the following?

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ALDERSGATE COLLEGE ADVANCED FINANCIAL ACCOUNTING AND REPORTING 2
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SCHOOL OF BUSINESS MANAGEMENT AND ACCOUNTANCY

a. Identifying the acquirer

b. Determining the acquisition date
c. Recognizing and measuring the identifiable assets acquired, the liabilities assumed and any
non-controlling interest in the acquiree
d. . Recognizing and measuring goodwill or a gain from a bargain purchase
e. All of these
9. Its refers to the entity that obtains control after the business combination.
a. Acquired b. acquiree c. acquirer all of these
10. According to PFRS 3, this is the date on which the acquirer obtains control over the acquiree.
a. Control date c. date of purchase
b. Acquisition date d. valentine`s date
11. The identifiable assets acquired and liabilities assumed in a business combination are generally
measured at
a. Acquisition-date fair values c. fair value less cost to sell
b. Previous carrying amounts d. cost
12. Which of the following assets of an acquiree may not be included when computing for the goodwill
arising from a business combination?
a. Capitalized kitchen utensils and equipment
b. Intangible assets not previously recorded
c. Research and development cost charged as expense
d. Goodwill
13. For each business combination, the acquirer shall measure any non-controlling interest in the
acquiree
a. At fair value
b. At the non-controlling interest proportionate share of the acquiree`s identifiable net assets
c. Either a or b
d. Neither a nor b
14. How is goodwill or gain from bargain purchase computed?

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ALDERSGATE COLLEGE ADVANCED FINANCIAL ACCOUNTING AND REPORTING 2
(AACTG125.1)
SCHOOL OF BUSINESS MANAGEMENT AND ACCOUNTANCY

a. The difference the consideration transferred, including non-controlling interest in the acquiree, and
the acquisition date fair value of net identifiable assets acquired.
b. The difference between the sum of a) consideration transferred b)non-controlling interest in the
acquiree and c) acquisition date fair value of the acquirer`s previously held equity interest in the acquiree
and the acquisition date fair value of net identifiable assets acquired.
c. The difference between the purchase price and the acquisition date fair value of net identifiable
asset acquired.
d. The excess of the acquisition date fair value of net identifiable assets acquired and there carrying
amounts in the acquirees books.
15. Direct costs of a business combination are
a. Capitalized c. capitalized, except for cots of issuing equity and debt
instrument
b. Expense d. expense, except for cots of issuing equity and debt instrument

Multiple Choice: Computation

On January 1, 2019, Pikot Co. Acquired all of the assets and assumed all of the liabilities of Small,
inc. As of this date, the carrying amounts and fair values of the assets and liabilities of XYZ
acquired by ABC are shown below:

Assets Carrying amount Fair

Values
Cash in Bank 40,000 40,000
Receivables 800,000 480,000
Allowances for probable losses on receivables (120,000)
Inventory 2,080,000
1,400,000
Building-net 4,000,000
4,400,000
Goodwill 400,000 80,000
Total Assets 7,200,000
6,400,000
Liabilities
Payable 1,600,000
1,600,000

PART TIME INSTRUCTOR – ALVIN JOHN C. PINTANG,CPA ADVANCED ACCOUNTING 2 Vol. 5

ALDERSGATE COLLEGE ADVANCED FINANCIAL ACCOUNTING AND REPORTING 2
(AACTG125.1)
SCHOOL OF BUSINESS MANAGEMENT AND ACCOUNTANCY

On the negotiation for the business combination, PIKOT co. Incurred transaction cost amounting to
400,000 for legal, accounting, and consultancy fees.

1 Case # 1. If Pikot co. Paid P6,000,,000 cash as consideration for the assets and liabilities of
Small, inc. How much is the goodwill (gain on bargain purchase) on the business combination?
a. 1,200,000 b. 1,120,000 c. 1,280,000 d. 1,240,000

2) Case # 2. If Pikot co. Paid P4,000,,000 cash as consideration for the assets and liabilities of
Small, inc. How much is the goodwill (gain on bargain purchase) on the business combination?
a. 800,000 b. 720,000 c. 880,000 d. 1,200,000

On January 1,2019 Knave acquired 80% of the equity interest of RASCAL, inc. In exchange for
cash. Because the former owners of RASCAL needed to dispose of their investments in RASCAL
by a specified date, they did not have sufficient time to market RASCAL to multiple potential
buyers.
As January 1, 2019, RASCAL`s identifiable assets and liabilities have fair value of P4,800,000 and
P1,600,000, respectively.

3) KANVE co. Elects the option to measure non-controlling interests at fair value. An independent
consultant was engaged who determined that the fair value of the 20% non-controlling interest in
XYZ, inc. Is P620,000.

If KNAVE co. Paid P4,000,000 cash as consideration for the 80% interest in RASCAL, inc. How
much is the goodwill (gain on bargain purchase) on the business combination?

a. 800,000 b. 2,060,000 c. 1,440,000 d. 1,420,000

4) KANVE co. Elects the option to measure non-controlling interests at non-controlling interests
proportionate share of RASCAL inc, net identifiable assets

If KNAVE co. Paid P4,000,000 cash as consideration for the 80% interest in RASCAL, inc. How
much is the goodwill (gain on bargain purchase) on the business combination?

a. 1,440,000 b. 800,000 c. 1,400,000 d. 960,000

On January 1,2019 SMUTTY acquired all of the identifiable assets and assumed all of the liabilities
of OBSCENE, Inc. On this date, identifiable assets acquired and liabilities assumed have fair
values of P6,400,000 and P3,600,000, respectively.

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ALDERSGATE COLLEGE ADVANCED FINANCIAL ACCOUNTING AND REPORTING 2
(AACTG125.1)
SCHOOL OF BUSINESS MANAGEMENT AND ACCOUNTANCY

SMUTTY incurred the following acquisition related costs: legal fees P40,000, due diligence costs,
P400,000 and general administrative cost of maintaining an internal acquisitions department
P80,000.

5) Case #1: As consideration for the business combination, SMUTTY co. Transferred 8,000 of its
share own equity instruments with par value per share of P400 and fair value per share of P500 to
OBSCENE`s former owners. Costs of registering the share amounted to P160,000. how much is
the goodwill (gain on bargain purchase) on the business combination?

a. 716,000 b. 560,000 c. 600,000 d. 1200,000

6)Case #2: As consideration for the business combination, SMUTTY co. Issued bonds with face
amount and fair value of P4,000,000. Transaction costs incurred in issuing the bonds amounted to
P200,000. how much is the goodwill (gain on bargain purchase) on the business combination?

a. 716,000 b. 560,000 c. 600,000 d. 1200,000

On January 1,2017, FORTITUDE Co, acquired 15% ownership interest in ENDURANCE Inc for
P400,000. The investment was accounted for under PFRS 9. From 2016 to the end of 2019,
FORTITUDE recognized net fair value gains of P200,000.
On January 1, 2020 FORTITUDE acquired additional 60% ownership interest in ENDURANCE inc.
For P3,200,000. As of this date, FORTITUDE has identified the following:
a. The previously held 15% interest fair value of P720,000.
b. ENDURANCE net identifiable assets have a fair value of P4,000,000.
c. FORTITUDE elected to measure non-controlling interest at the non-controlling interest
proportionate share of ENDURANCE identifiable net assets.

7)How much is the goodwill or gain from bargain purchase?

a. 200,000 b. 420,000 c. 920,000 d. 540,000

On January 1, 2017 OBDURATE co. Acquired 30% ownership interest in STUBBORN, inc. For
P400,000. because the investment gave OBDURATE significant influence over STUBBORN, the
investment was accounted for under the equity method in accordance with PAS 28.
From 2017 to the end of 2019, OBDURATE recognized the P200,000 net share in the profits of the
associate and the P40,000 share in dividends. Therefore, the carrying amount of the investment in
associate account on January 1, 2020 is P560,000.
On January 1, 2020, OBDURATE acquired additional 60% ownership interest in STUBBORN inc.
For P3,200,000. As of this date, OBDURATE has identifiable the ff:
a. The previously held 30% interest has a fair value of P720,000.
b. STUBBORN net identifiable assets have fair value of P4,000,000.

PART TIME INSTRUCTOR – ALVIN JOHN C. PINTANG,CPA ADVANCED ACCOUNTING 2 Vol. 5

ALDERSGATE COLLEGE ADVANCED FINANCIAL ACCOUNTING AND REPORTING 2
(AACTG125.1)
SCHOOL OF BUSINESS MANAGEMENT AND ACCOUNTANCY

c. OBDURATE elected to measure non-controlling interest at the non-controlling interest

proportionate share of XYZ`s identifiable net assets.

8.)How much is the or gain from bargain purchase?

a. 320,000 b. 240,000 c. 280,000 d. 360,000

BUCOLIC Co. Owns 36,000 shares representing 40% ownership interest in RURAL inc. 90,000
outstanding shares. BUCOLIC accounts for the investment under the equity method.
On January 1, 2019, RYRAL reacquired 30,000 of its own shares from other investor so that
BUCOLIC shall obtain control over the RURAL. The following were determined as of acquisition
date:
A. The previously held 40% interest has a fair value of P720,000.
B. RURAL net identifiable assets have a fair value of P4,000,000.
C. BUCOLIC elected to measure non-controlling interest at the non-controlling interest`s proportionate
share of RURAL`s identifiable net assets.

9)How much is the or gain from bargain purchase?

a. (1,680,000) b. (1,320,000) c. (880,000) d. 0

PART TIME INSTRUCTOR – ALVIN JOHN C. PINTANG,CPA ADVANCED ACCOUNTING 2 Vol. 5