POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

COLLEGE OF ACCOUNTANCY AND FINANCE

ACC0 30023 – ACCOUNTING FOR BUSINESS COMBINATION

SPECIAL MIDTERM EXAMINATION

Test I- Problem Solving (2 PTS. EACH)

1. On January 2, 2019 Parent acquired the net assets of Son Company (excluding cash) for P1,700,000
cash and by issuing shares of stocks with a fair market value of P6,220,000. Book value and fair value
data of both companies as of January 2, 2019 are as follows:
P COMPANY S COMPNAY
BV FV BV FV
Cash 9,2000,000 9,200,0000 600,000 600,000
Accounts Receivable 2,000,000 2,000,000 1,960,00 1,960,000
Inventory 3,000,000 2,600,000 1,420,000 1,200,000
Bldg. & Equip. -Net 3,600,000 2,920,000 3,040,000 2,128,000
Goodwill 180,000 160,000
Liabilities 2,000,000 2,000,000 1,140,000 1,140,000
Share Capital 3,200,000 1,200,000
Share Premium 1,800,000 1,920,000
Retained Earnings 10,800,000 2,940,000

Parent incurred and paid legal and brokerage fees of 51,200 for business combination; share issue
costs of P46,000 and P24,000 indirect acquisition costs. It is determinable that a contingency fee of
P236,000 would be paid within a year.

How much is the goodwill to be recognized arising from business combination?

a. P 4,008,000 b. P 3,195,6000 c. P 1,708,000 d. P 1,495,600

2. Using the data above, the total assets after the business acquisition is
a. P 23,982,400 b. P 26,762,400 c. P 27,038,800 d. P 25,274,800

3. Using the information in no. 1. The total shareholders’ equity after the business combination is
a. P 21,898,800 b. P 21,875,200 c. P 15,800,000 d. P 22,020,000

4. On January 2, 2019, Panasonic Company purchased 90% of the outstanding shares of Samsung
Company for P80,000,000. Panasonic also Paid P2,500,000 as direct costs attributable to the
combination. Panasonic was also obligated to pay an additional P20,000,000 to the stockholders of
Samsung Company at the end of the year If Samsung company maintained existing profitability and
it is highly probable that Samsung company would achieve this expectation. The fair value of the
contingent consideration is P 20,000,000.
The following financial information for Panasonic Company and Samsung Company follows:
Panasonic Samsung Company
Company
Book Value Book Value Fair Value
Cash and Cash Equivalent 90,000,000 7,500,000 7,500.000
Accounts Receivable 32,500,000 17,500,000 16,500,000
Inventory 47,500,000 25,000,000 23,000,000
Plant and Equipment 100,000,000 50,000,000 60,000,000
Other Assets 6,000,000 4,000,000 2,500,000
Liabilities 60,000,000 10,000,000
Share Capital 200,000,000 75,000,000
Retained Earnings 16,000,000 19,000,000

Assuming Panasonic opted to measure NCI proportionate to its share on the identifiable net assets
acquired, the amount of goodwill to be recorded by Panasonic arising from the business acquisition
is
a. P 11,611,110 B. P 10,450,000 c. P (10,450,000) d. No Answer

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 5. Assuming Panasonic opted to measure NCI proportionate to its shares, the NCI to appear in the
consolidated balance sheet on the date of acquisition is
a. P 10,950,000 b. P 4,950,000 c. P 11,111,111 d. P9,950,000

6. Using the data in No.4. Assuming the NCI is measured at Fair value, the amount of goodwill arising
from acquisition is
a. P 11,611,111 b. P 10,950,000 c (P 10,950,000) d. P 11,111,111

7. Polar Company purchased a 10% in Solar Company a year ago as an available for sale for P400,000.
On January 2, 2019 Polar purchased 17,500 additional shares of Solar Company from existing
stockholders for P3,150,000 that raised Polar Interest to Solar to 80%. Solar Company’s Financial
Position prior to the 2nd purchase follows:

Current Assets 1,650,000 Liabilities 650,000

Land and Building-Net 1,400,000 Ordinary Shares, P20 par 1,000,000
Equipment –Net 1,000,000 Retained Earnings 2,400,000

On the date of 2nd purchase, Independent appraiser determine that the fair value of Solar equipment
is P 500,000 higher than its carrying value with 5 years remaining life. All other assets approximate
their fair values. Any excess is attributable to goodwill.
What is the fair value of the 10% previously held investment on the date of acquisition?
a. P 400,000 b. P 550,000 c. P 450,000 d. P 900,000

8. The fair value of the 20% NCI on the date of acquisition is:
a. P 950,000 b. P 900,000 c. P 443,750 d. P 340,000

9. The gain or(loss )on the previously held security is:

a. P 50,000 b. (P50,000) c. P 0 d. no given answer

10. The goodwill to be recognized upon acquisition is (full goodwill).

a. P 600,000 b. (P 600,000) c. P 480,000 d. (480,000) d. No given answer

11. P Company, an SME issued 60,000 shares of P100 par value ordinary shares for all the outstanding
stock of S Company in business combination consummated on January 2,2019. P company’s ordinary
shares were selling at P P160 per share at the time of acquisition. The book value of S net assets was
P 7.6M. Out of pocket costs of combination were as follows: Legal fees for business combination,
P24,000; printing cost for stock certificate, P 18,800; finder’s fee, P54,000 and CPA audit fee for
business combination, P 38,000. A contingent consideration that is probable and can be reasonably
estimated amounted to P36,400.

The total amount to be capitalized as cost of investment in S company is

a. P 9,600,000 b. P 9,716,000 c. P 9,636,400 d. P 9,752,400

12. In January 2, 2019, Palawan Company purchased 80% of the outstanding stock of Samar Company for
P 5,600,000. Palawan opted to measure NCI proportionate to their share on the identifiable net
assets. At that date, the stockholder’s equity of Palawan Company and Samar Company is composed
of the following:
Palawan Company Samar Company
Ordinary Shares P 20,000,000 P 4,600,000
APIC 4,800,000 1,400,000
Retained Earnings 6,000,000 1,480,000

The carrying values of the assets and liabilities of Samar Company are equal to their fair values, except
for the following:
a. Equipment with a five years remaining life had a fair value which is lower than its carrying
amount by P240,000.
b. The fair value of Samar Company’s loan payable is to be adjusted upward by P 80,000.

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 The Net income reported and dividends paid by Palawan and Samar for 2019 follows:
Palawan Samar
Net Income P 1,480,000 P 360,000
Dividends 1,000,000 320,000

The total Stockholders Equity in the consolidated balance sheet on January 2,2019 is
a. P 32,232,000 b. P 32,864,000 c. P 32,624,000 d. P 32,360,000

13. Using the data above. The NCI on December 31,2019 is

a. P 1,449,600 b. P 1,465,600 c. P 1,542,400 d. P 1,414,400 e. no answer

14. Using the data in No. 13. The net income attributable to the parents on December 31, is
a. P 1,678,400 b. P 1,486,400 c. P 1, 550,400 d. P 1,742,400 e. no answer

15. On January 2, 2019 Perla Corporation Acquired 2,700 shares of the outstanding shares of Surf
Company for P 425,000. As of this date, the stockholder’s equity of surf Company consisted of Capital,
P100 par, P 300,000; and Retained Earnings, P 150,000. Also, on this date, the identifiable assets and
liabilities of Surf Company are equal to their book values except for plant and equipment with 5 years
remaining life, with carrying values higher than its fair value by P 50,000. In 2019 Perla company
reported net income of P 250,000 and paid dividends of P 150,000. Surf Company reported net income
of P100,000 and paid dividends of P100,000 in 2019.

The consolidated net income to be reported in 2019 is

a. P259,000 b. P 105,000 c. P241,000 d. P270,000

16. The carrying value of the Investment in Surf Company on December 31,2019 is
a. P P407,000 b. P 423,000 c. P 425,000 d. P 405,000

17. The net income attributable to Perla is

a. P 270,000 b. P 259,000 c. P P250,000 d. P 241,000 e. No answer

18. Plum Corporation acquired 80% of Slum Co. for P 5,000,000 on January 2, 2019. On this date, Slam
Co. reported Ordinary share capital of P 3,000,000 and Retained Earnings of P2,000,000 Change in
assets to fair values were undervaluation of P 300,000 and P 400,000 in Equipment and Building
respectively. Both assets have 10-year remaining useful life. An annual review revealed that goodwill
has not been impaired.
Slam Co. earned income and paid dividends as follows:
2019 2017 2018
Net Income 1,000,000 1,200,000 1,3000,000
Dividends 400,000 500,000 600,000

The Non-Controlling interest in the net income of Slam Co., at December 31.2017 is
a. P 140,000 b. P 184,000 c. P 226,000 d. P 240,000
,
19. The NCI at December 31,2018 assuming Plum Cor. Opted to measure NCI at fair Value is
a. P 800,000 b. P 1,078,000 c. P 1,400,000 d. P 1,608,000

20. The balance of the investment account at December 31,2018 is

a. P 5,924,000 b. P 5,000,000 c. P 5,744,000 d. P 7,660,000

21. The dividends income of Plum Co. from Slam Co.in 2018 is
a. P 560,000 b. P 504,000 c. P948,000 d. P 480,000

22. Phil Co. acquires a controlling interest in Sill Co. for P600,000 in the open market. P100 par Ordinary
share capital of Sill Co. at the time of acquisition is P625,000 and its Retained Earnings mount to
P250,000. Sill Co. shares are selling at P120 per share in the open market.

The Goodwill/ Income arising from acquisition assuming NCI is measure at fair value
a. Goodwill, P100,000 b. Income, P100,000 c. Income, P125,000 d. Goodwill, P125,000

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 23. The interest acquired by Phil Co. over Sill Co. is:
a. 100% b. 70% c. P80% d. 90%

24 The NCI if Phil opted to measure it at fair value is:

a. P 175,000 b. P 50,000 c. P 125,000 d. P150,000

25. The working paper elimination entry recorded by Parent Company on January 1,2019, the date of
acquisition of its subsidiary follows:
Ordinary share capital - Subsidiary 200,000
Ordinary share premium - Subsidiary 300,000
Retained Earnings - Subsidiary 250,000
Inventory 75,000
Plant assets (net) 105,000
Patent 70,000
Goodwill 200,000
Investment in Subsidiary 920,000
Non Controlling Interest 280,000

Of the recorded goodwill, P30,000 belongs to non-controlling interest. Determine the percentage not
acquired by the parent (NCI interest)?
a. 22% b. 28% c. 25% d. 23 1/3%

26. Pantene Company acquired a 70% interest in Sunsilk Company for P 1,420,000 when the fair value of
Silk’s identifiable net assets was P1,200,000. Pantene acquired 65% interest in Dove Company for P
300,000 when the fair value of Dove’s identifiable assets was P 640,000. Pantene measures non-
controlling interest at the relevant share of the identifiable net assets at the acquisition date. Neither
Sunsilk nor Dove had any contingent liabilities at the acquisition date and the above fair values were the
same as the carrying amounts in their financial statements. Annual impairment reviews have not resulted
in any impairment losses being recognized.
Under PFRS 3: Business Combinations, what figures in respect to goodwill and gain on bargain purchases
should be included in Pantene’s consolidated Statement of Financial Position
a. Goodwill: P -0-; Gain on Bargain Purchase: P-0-
b. Goodwill: P580,000; Gain on Bargain Purchase: P116,000
c. Goodwill: P 580,000; Gain on Bargain Purchase: P-0-
d. Goodwill: P-00; Gain on Bargain Purchase: P116,000
e. Goodwill: P464,000; Gain on Bargain Purchase: P-0-

27. Pangilinan group acquired an 80 interest in SM Corporation. The consideration for the 80% interest in
SM was P3,600,000 in shares in Pangilinan and P 1,200,00 cash. To issue the shares Pangilinan incurred
a cost of P200,000 and incurred costs of P140,00 associated with legal fees and the valuation of SM. The
fair value of the net assets of SM amounted to P 6,400,000
How should Pangilinan account for this acquisition?
a. Pangilinan shall book goodwill as an asset of P20,000.
b. Pangilinan shall book a gain through profit or loss of P320,000 related to acquisition, recognized
expense of P140,000 and deduct from equity P 200,000 relative to the cost of issuing the shares
c. Pangilinan shall book a gain through profit or loss of P 120,000 and recognized the costs of legal
fees of P140,000 as expense in profit or loss.
d. Pangilinan shall book a gain through profit or loss of P 320,000 and recognize expense of P
340,000 relative to the costs of issuing shares, paying legal fees in performing the valuation of
SM, in profit or loss.

28. On January 1, 2019, Petron acquired the identifiable net asset of Shell Inc. On this date, the identifiable
assets acquired and liabilities assumed have fair values of P6,400,000 and P3,600,000, respectively. Petron
incurred the following acquisition-related costs: legal fees, P40,000, due diligence costs, P400,000; and
general and administrative costs of maintaining an internal acquisition, P80,000.

As consideration, Petron transferred 8,000 of its own shares with par value and fair value per share of
P400 and P500, respectively, to Shell’s former owners. Costs of registering and listing the shares
(previously issued and newly issued) amounted to P160,000 (P20,000 pertains to listing fees of previously
issued shares).

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 How much is the goodwill (gain on bargain purchase) on the business combination?
a. P716,000 b. P556,000 c. P600,000 d.P1,200,000

29. How much is the total amount charged to profit or loss in relation to the transaction above?
a. P540,000 b. P 680,000 c. P 520,000 d. P600,000

30. ABC Corp. (qualify as SME) issued 120,000 shares of P25par ordinary share for all outstanding shares of
XYZ in a business combination consummated on January 1, 2019. ABC’s ordinary share was selling at P40
per share at the time of the consummation of the combination. XYZ’s net asset is P4.2 million at book
value (fair value 4.439M). The difference is due to inventory with fair value higher by P59,000 than its
book value and the balance is to equipment with remaining useful life of 6 years. Out of pocket expenses
of the combination were as follows:

Legal Fees:
For business combination 12,000
For SEC registration 14,500
SEC registration costs 18,200
Printing costs of share certificates 9,400
Finder’s fee 27,000
CPA audit fee for SEC registration 19,000

Net income reported by ABC and XYZ for 2019 is P1,200,000 and P500,000, respectively. The Share
Capital and Retained Earnings of ABC is P1,500,000 and P700,000, respectively.

How much is the consolidated net income for 2019?

a. P1,571,000 b. P 1,321,000 c. P1,611,000 d. P1,461,000

31. On January 5, 2019, Paolo Corporation acquired 80% of Sam Company’s ordinary shares for P3,240,000.
P150,000 of the excess is attributable to goodwill and the balance to a depreciable asset with economic
life of ten years. Non-controlling interest is measured at fair value. On the date of acquisition,
stockholders’ equity section of the two companies were as follows:
Paolo Corporation Sam Company
Ordinary Shares 5,250,000 1,200,000
Retained Earnings 7,800,000 2,100,000

On December 31, 2019, Sam Company reported net income of P525,000 and paid dividends of P180,000.
Paolo reported net income of P1,425,000 and paid dividends of P690,000. Goodwill had been impaired
and should be reported at P30,000 on December 31, 2019.
How much is the consolidated net income on December 31, 2019?
a. P1,626,000 b. P1,788,750 c. P1,770,000 d. P1,860,000

32. What amount of non-controlling interest is presented in the consolidated statement of financial position
on December 31, 2019?
a. P772,500 b. P834,000 c. P821,250 d. P843,000

33. Accountancy Company acquired 75% of outstanding ordinary shares of Finance Company for P900,000.
Book value of Finance Company’s net assets is P1,000,000. Upon re-measurement of acquires net assets,
it shows that inventory has a fair value lower by P40,000 than its book value and equipment held for 3
years has a fair value and book value of P450,000 and P360,000, respectively. The original cost of Finance
Company’s equipment is P576,000 with no residual value. Accountancy opt to measure NCI at fair value
of P275,000. During the year Accountancy reported net income from own operation of P300,000 and
received P30,000 dividend from Finance. Finance Company’s net income amounts to P120,000. Goodwill,
if partial, is impaired by P13,500.
Compute the consolidated net income.
a. P424,000 b. P439,000 c. P427,000 d. P394,000

34. Refer to #33, Non-Controlling Interest in Net Assets of Subsidiary (NCINAS) at the end is:
a. P296,000 b. P298,500 c. P299,000 d. P286,500

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 35. Refer to #33, Net income attributable to Accountancy Company is:
a. P 393,000 b. P376,500 c. P390,000 d. P406,500

36. Condensed statements of financial position of Love Corp. and You Corp. as of December 31, 2018 are as
follows:
Love You
Current assets P 175,000 P 65,000
Noncurrent assets 725,000 425,000
Total assets P 900,000 P 490,000

Liabilities P 65,000 P 35,000

Common stocks, P20 par 550,000 300,000
Additional Paid-in capital 35,000 25,000
Retained earnings 250,000 130,000

On January 1, 2019, Love Corp. issued 35,000 stocks with a market value of P25/share for the assets and
liabilities of You Corp. The book value reflects the fair value of the assets and liabilities, except that the
noncurrent assets of You have fair value of P630,000 and the noncurrent assets of Love are overstated by
P30,000. Contingent consideration, which is determinable, is equal to P15,000. Love also paid for the stock
issuance costs worth P34,000 and other acquisition costs amounting to P19,000. How much is the combined
total assets after the merger?

a. P1,772,000 b. 1,567,000 c. P1,825,000 d. P1,742,000

37. On July 1, 2017, Exploding Kittens Company acquired 700,000 shares of Bad Dog Company at a price of
P13 per share. Exploding Kittens estimated that the price paid include P1.50 premium in order to gain
control over Bad Dog. On this date, the fair values of Bad Dog’s identifiable assets and liabilities and their
carrying values are given below:
Book Value Fair Value
Current assets P2,000,000 P2,000,000
Property, plant and equipment 9,000,000 11,000,000
Liabilities P3,000,000
Ordinary shares, P5 par 5,000,000
Retained earnings 3,000,000

Determine the amount of goodwill assuming the non-controlling interest is measured at fair value.
a. P P3,000,000 b. P2,550,000 c. P3,450,000 d. P2,100,000

38. Using the information above, determine the amount of goodwill assuming the non-controlling interest is
measured at the proportionate share in the net assets.
a. P2,100,000 b. P1,050,000 c. P2,550,000 d. P3,000,000

39. Palma Company acquired 80% of outstanding ordinary shares of Shera Company for P1,000,000 at the
beginning of 2018. Book value of Shera Company’s net assets is P1,000,000. Upon re-measurement of
acquiree’s net assets, it shows that inventory has a fair value higher by P40,000 than its book value and
equipment with a fair value and book value of P450,000 and P360,000, with remaining life of five (5) years.
Palma measures NCI at fair value. The fair value of NCI at the beg. of 2018 was P250,000. During the year
Palma reported net income of P300,000 for the year ended December 31, 2018. Shera Company’s net
income for 2018 amounts to P120,000. Goodwill is impaired by P15,000. Shera sold inventory to Palma
at 20% gross profit. Inventory amounting to P50,000 remained in the books of Palma.
How much is the goodwill on the consolidated balance sheet on December 31, 2018 assuming that the
corporations qualify as SMES?
a. 105,000 b. P81,000 c. P86,400 d. P108,000

40. On January 1, 2018, P Corp. purchased 80% of S Co.’s P10 par ordinary shares for P986,000. On this date,
the carrying amount of S’s net assets was P1,000,000. The fair values of S Co.’s identifiable assets and
liabilities were the same as their carrying amounts except for plant assets (net), which were P120,000 in
excess of the carrying amount. The estimated remaining life of the asset is 5 years. For the year ended
December 31, 2018, S had net income of P290,000 and paid cash dividends totaling P125,000. Loss on

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 impairment of goodwill in 2018 amounted to P20,000. P Corp. uses the proportionate method in
measuring non-controlling interest.
Determine the non-controlling interest in net income on December 31, 2018.
a. P53,200 b. P58,000 c. P49,200 d. P24,200

Test II - Theory (1 PT. EACH)

41. Goodwill arising from business combination is (applying IFRS 3)

a. Charged to Retained Earnings after the acquisition is completed.
b. Amortized over 10 years in the absence of useful life.
c. Amortized over 20 years or its useful life, whichever is shorter.
d. Tested for impairment.
e. At the discretion of management, either tested for impairment or amortized.

42. Company A acquires the entire equity of Company B for P120,000. Company A also agrees to pay an
additional amount that is the higher between P1,500 and 25% of any excess of Company B’s profits in the
first year after the acquisition over its profits in the preceding 12 months. This additional amount is due
after two years. Company B earned profits of P20,000 in the preceding 12 months but expects to make at
least P30,000 in the year after the acquisition date. Which of the following is TRUE?
a. The future payment is considered a deferred payment and not a contingent consideration.
b. The payment after two years is subject to re-measurement.
c. The future payment will be considered in the computation of goodwill/gain after assessing its fair
value on the date of combination and subsequently re-measured with changes recognize in PnL.
d. The company has a maximum of 1 year for the date of combination to finalized the value of
deferred payment.

43. Which of the following is NOT a step under the acquisition method per IFRS 3?
a. Determination of the acquisition date.
b. Determining the cost of business combination.
c. Recognition and measurement of goodwill or gain on combination.
d. Identifying the acquirer.
e. None of the above.

44. Parent A holds stakes in subsidiaries S1 and S2 which both operate in the same industry sector. Parent A
holds a controlling interest in S1 and a 35% interest in S2. The remaining 65 % interest in S2 is held by
Parent B. S1 is much larger than S2 in terms of market share. Its products account for a market share of
40% whereas S2 only accounts for 15%. Parent A also holds options to acquire a further 40% interest in
S2 from Parent B. The options are in the money but the competition authority has stated that it would
only permit A to acquire the additional 40% share in S2 if A disposes of its controlling interest in S1. Who
have control over S2? Why?
a. Parent A because the option is in the money.
b. Parent B because it is unlikely that Parent A will exercise the option.
c. Parent A because the right of Parent A is substantial.
d. Parent B because the right of Parent A is only protective
e. None, because Parent A and B has joint control

45. In which of the following situations should the consolidated financial statements be presented?
a. PQR and HJK Bank has a holding of 50% each in the equity of XYZ Pharmaceuticals, Ltd.
b. INH Insurance is a parent of group of four wholly-owned subsidiaries.
c. AFG Ltd. has an interest of 20% in equity shares of Entity D.
d. ABC Inc. has 5% equity interest in PKJ, Ltd.

46. A wholly owned subsidiary declared dividend and half remains unpaid by the end of the year, which of
the following is TRUE?
a. The elimination entry will include a debit to non-controlling interest for the amount of dividend
received by the non-controlling shareholders.
b. The transaction will have an impact in the computation of the balance of NCI at the end.
c. Only half of the amount of the dividend will be used to reduce the profit of the parent for
consolidation purposes.
d. The total amount of the dividend will be eliminated in the working paper elimination entry by
debiting “dividend revenue” account.
7

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 47. According to IFRS 10, control is the basis of consolidation. Control requires that three factors must be
present. An investor must have:
a. Power over the investee.
b. Exposure or rights to variable return from its involvement with the investee.
c. Ability to use its power to affect the amount of returns.
d. All of the above.

48. In the preparation of consolidated financial statements, dividend revenue recognized by the parent for
dividend distributed by investee, which is not a subsidiary is
a. Included with parent company income from other sources to constitute consolidated net income.
b. Assigned as a component of non-controlling interest.
c. Allocated proportionately to consolidated net income and non-controlling interest.
d. Eliminated.

49. In a mid-year purchase when a subsidiary’s books are not closed until the end of the year, the purchased
income account contains the parent’s share of the
a. Consolidated net income
b. Subsidiary’s income for the entire year
c. Subsidiary’s income earned from the beginning of the year up to the date of acquisition
d. Subsidiary’s income earned from the date of acquisition up to the end of the year

50. The elimination entry for dividends declared by a wholly subsidiary includes a debit entry to
a. Dividends c. Non-Controlling Interest
b. Dividend Income d. Both b and c

51. This is defined as the holders of equity interest of investor-owned entities or members and participants
in mutual entities.
a. Owners b. Investors c. Shareholders d. Participants

52. Non-Controlling Interest (NCI) shall be presented

a. As a non-current liability
b. Separately from liabilities and parent shareholders’ equity
c. Within equity, separately from parent shareholders’ equity
d. As a component of parent shareholders’ equity

53. An entity shall determine whether a transaction or other event is a business combination by applying the
definition in PFRS 3, which requires that:
a. the assets acquired and liabilities assumed constitute a business.
b. all of the combining entities or businesses are ultimately controlled by the same party or parties
both before and after the business combination.
c. all of the combining entities transfer their net assets, or the owners of those entities transfer their
equity interests, to a newly formed entity.
d. All of the above.

54. Which of the following standards set the required disclosures for consolidated financial statements?
a. IFRS 10 – Consolidated Financial Statements
b. IFRS 3 – Business Combination
c. IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors
d. IFRS 12 – Disclosure of Interest in Other Entities

55. Georgie Corporation paid cash for all the voting ordinary shares of Dave Company. Dave will continue to
exist as a separate entity. Entries for the acquisition of control, to record investment in subsidiary, will be
recorded in
a. A worksheet
b. Georgie Corporation’s general journal
c. Dave Company’s general journal
d. In the financial record of both companies

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 56. This is defined as “the financial statements presented by a parent in which the investments are accounted
for on the basis of the direct equity interest”.
a. Consolidated Financial Statements c. Combined Financial Statements
b. Single Financial Statements d. Separate Financial Statements

57. Which statement is incorrect concerning an acquirer?

a. If a new entity is formed to issue equity interests to effect a business combination, the new entity formed is
necessarily the acquirer.
b. In a business combination effected by transferring cash or other assets, the acquirer is usually the entity that
transfers the cash or other assets.
c. The acquirer is usually the combining entity whose relative size is significantly greater than that of the combining
entity or entities.
d. The acquirer is usually the combining entity that pays a premium over the pre-combination fair value of the
equity interests of the other combining entity or entities.

58. Group A has acquired the following. Which of the following acquisitions are business combinations under
IFRS 3?
A. Land and a vacant building from Company B. No processes, other assets or employees are acquired. Group A
does not enter into any of the contracts of Company B.
B. An operating hotel, the hotel’s employees, the franchise agreement, inventory, reservations system and all
“back office” operations.
C. All of the outstanding shares in Biotech D, a development stage company that has a license for a product
candidate. Phase I clinical trials are currently being performed by Biotech D employees. Biotech D’s
administrative and accounting functions are performed by a contract employee.

a. All three acquisitions are business combinations under PFRS 3.

b. A and B acquisitions are business combinations under PFRS 3.
c. A and C acquisitions are business combinations under PFRS 3.
d. B and C acquisitions are business combinations under PFRS 3.

59. Which of the following business combination transactions will affect the goodwill or gain on bargain
purchase arising from business combination?
a. Payment for legal fees, auditor and broker’s fees directly connected with the business combination.
b. Incurring costs related to the issuance of ordinary shares given as consideration for acquisition of the 51-100%
of ordinary shares of subsidiary corporation.
c. Measurement adjustments during measurement period which shall not exceed 12 months from the date of
acquisition.
d. Payment of costs directly related to the issuance of bonds payable given as consideration for the acquisition of
the net assets of the acquired corporation.

60. The effective date of Revised IFRS 3: Business Combination:

a. July 1, 2009
b. January 1, 2009
c. January 1, 2008
d. July 1, 2008
e. January 1, 2010

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