A joint arrangement exists only if decisions on relevant activities require the unanimous consent of all the

participants to the arrangement. FALSE

An and. B enters into a contract to contribute cash to acquire a taxi, A and B will have joint control over
the operation of the taxi and will share equally in the revenues and expenses. A and B are referred to as
joint taxi ventures. FALSE

The venturers and operators account for their interest in a joint arrangement by recognizing the
Investment account and accounting for it using the Equity Method under IAS 28. FALSE

When two or more oil entities control and operate an oil pipeline and each party uses the pipeline to
transport its own product in return for which it bears an agreed proportion of the expenses of operating
the pipeline is an example of joint operation. TRUE

Under the equity method. Dividends received from the investee are treated as dividend income. FALSE

An and. B enters into a contract to contribute cash to acquire a taxi, A and B will have joint control over
the operation of the taxi and will share equally in the revenues and expenses. The taxi is referred to in
PFRS 11 as a separate vehicle. FALSE

An entity that acquires interest in a joint venture whose activity constitutes a business, shall account for
its share
a) Using the equity method.
b) At fair value.
c) As a business combination.
d) At cost.
Read Co. and Learn Co., national distributors of textbooks, enter into a contract to acquire a warehouse in
a particular region. Each party will use the warehouse to store its own inventories. The parties agree to
share in the costs of acquiring and maintaining the warehouse. Under PFRS 11. The arrangement between
Read and Learn is most likely a
a) joint operation
b) Jointly controlled asset.
c) None these.
d) Joint venture.
The reason/s why firms combine is/are:
a) All of the above
b) Growth
c) Management takeover
d) Costs savings
e) Synergy

If the fair value of the identifiable net assets exceeds the aggregate amount of consideration paid and non
– controlling interest, the result of the business combination is reported first in:
 a) Retained earnings.
b) Profit or loss.
c) Total assets.
d) Other comprehensive income.
According to PAS 37, Provisions, Contingent Liabilities, and Contingent Assets, only liabilities that are
both probable and reliably measurable should be recognized. In this case, contingent consideration in a
business combination is
a) Recognized even if it is a departure from the standards because companies have the option to
depart as long as it is disclosed in the notes to financial statements.
b) Not recognized because contingent consideration is not probable and thus, not a provision. It is
used only to compute for goodwill or gain from a bargain purchase.
c) Recognized because PFRS 3 shall prevail over PAS 37.
d) Not recognized because it is a departure from the standards.
 
Which among the following would be classified as stock issuance costs?
a) Broker fees.
b) Allocated administrative expenses.
c) Professional and legal fees.
d) SEC Registration fees for new shareholders.
The result of business combination in the case of a stock acquisition is recorded in:
a) Separate books of the Parent Company.
b) Separate financial statements of the acquired.
c) Consolidated financial statements.
d) Separate financial statements of the acquirer.
In both merger and acquisition of stocks, the shareholder’s equity of the acquired company is eliminated.
The journal entry to be recorded in the books of the Subsidiary that is related to the elimination of
shareholder’s equity of the latter is
a) DR: Ordinary shares xx DR: Share premium xx DR: Retained earnings xx CR: Investment in
subsidiary xx CR: Non – controlling interest xx
b) DR: Ordinary shares xx DR: Share premium xx DR: Retained earnings xx CR: Investment in
subsidiary xx
c) DR: Ordinary shares xx DR: Share premium xx DR: Retained earnings xx CR: Non – controlling
interest xx
d) DR: Ordinary shares xx DR: Share premium xx DR: Retained earnings xx CR: Goodwill xx
e) Some other answer

One form of business combination in which the two combined entities will be dissolved to create a
new company.
a) Consolidation
b) Acquisition of stocks
c) Merger
d) Acquisition of net assets
 Acquisition–related costs are first charged to:
a) Other comprehensive income.
b) Working papers.
c) Profit or loss of the acquirer.
d) Retained earnings of the acquirer.
 

On January 2, 2021, Peter Corporation acquired 80% of the outstanding shares of Simon Company for P4,
500,000 cash. The non-controlling interest is measured at fair value. The following are the account
balances from the respective financial statements of Peter and Simon Company on January 2, 2021:
 

Peter Corporation Simon Company

Assets
Cash ₱5,800,000 ₱1,834,000

Accounts Receivable                1,250,000              1,753,000

Merchandise Inventory                3,280,000              1,985,000

Equipment, net                4,750,000                 875,000

Building, net                2,430,000                 766,000

Land                1,500,000                 450,000

Patent, net                   840,000                 320,000

Investment in Subsidiary                4,500,000  

TOTAL ASSETS ₱24,350,000 ₱7,983,000

Liabilities

Accounts Payable ₱2,600,000 ₱745,000

Notes Payable - Trade                3,870,000                 853,000

Bonds Payable                4,560,000                 950,000

Total Liabilities ₱11,030,000 ₱2,548,000

Shareholders' Equity

Ordinary Shares ₱6,440,000 ₱3,280,000

Share Premium                1,230,000                 925,000

Retained Earnings                5,650,000              1,230,000

Total Shareholders' Equity ₱13,320,000 ₱5,435,000

TOTAL LIABILITIES & SHE ₱24,350,000 ₱7,983,000

 
Upon examination, book values of all assets and liabilities of Simon Company are equal to their fair
values except for the following:

 Merchandise inventory has a fair value of P1,650,000

 Equipment’s book value is overstated by P30,000
 Building’s fair value amounted to P948,000
 Land and patent’s book values are understated by P115,000 and P30,000, respectively
 Bonds payable’s book value exceeds its fair value by P60,000

Consolidated current assets 15,567,000

Consolidated non-current assets 12,396,000
Consolidated total liabilities 13,518,000
Consolidated shareholders’ equity 14,445,000
Goodwill attributable to non-controlling interest

TUV and DEF establish joint arrangements using a separate vehicle XYZ, but the legal form of the
separate vehicle does not confer separation between the parties and the separate vehicle itself.  That is,
TUV and DEF have rights to the assets and obligations for the liabilities of XYZ. Neither the contractual
terms nor the other facts and circumstances indicate otherwise.  Accordingly, TUV and DEF account for
their rights to assets and their obligations for liabilities relating to XYZ in accordance with IFRS 11.
 
TUV and DEF each own 50% of the outstanding shares of XYZ. However, the contractual terms of the
joint arrangement stated that TUV has the rights to all of the Equipment of XYZ and the obligation to pay
all the Loan Payable of XYZ.   It also stated that DEF has the rights to all of the Machinery of XYZ and
the obligation to pay all the Mortgage Payable and Long-term Notes Payable of XYZ.  TUV and DEF
have rights to all other assets of XYZ and obligations to all other liabilities of XYZ in proportion to their
equity interests. The following statement of financial position contains final balances as of December 31,
2022.

Statement of Financial Position

XYZ Co.

As of December 31, 2022

ASSETS LIABILITIES and EQUITY

Cash P  28,000,000 Current Liabilities P  50,000,000

Other Current Assets     90,000,000 Bonds Payable   127,000,000

Building   170,000,000 Loan Payable     60,000,000

Equipment     75,000,000 Mortgage Payable     31,000,000

Machinery     48,000,000 Long-term Notes Payable       2,000,000

Furniture     19,000,000 Equity   160,000,000

Total liabilities and

Total Assets   430,000,000   430,000,000
equity

 
Additional information related to the company’s operations follow:

 Sales revenue amounted to P12,250,000

 Non-cash operating expenses totaled P1,280,000
 Expenses paid amounted to P850,000
 Dividends declared during the year amount to P575,000

Total assets of TUV as shown in its own Statement of Financial Position to account for its rights and
obligations in XYZ.
 Total liabilities of TUV as shown in its own Statement of Financial Position to account for its rights and
obligations in XYZ.
Total assets of DEF as shown in its own Statement of Financial Position to account for its rights and
obligations in XYZ.
Total liabilities of DEF as shown in its own Statement of Financial Position to account for its rights and
obligations in XYZ.