1. A newly acquired subsidiary had pre-existnn noodwill on its books.

The parent company's consolidated

balance sheet will
a. not show any value for the pre-existnn noodwill unless all other assets of the subsidiary are stated at
their full fair value.
b. always show the pre-existin noodwill of the subsidiary at its book value.
c. treat the noodwill similarly to other iitainible assets of the acquired compaiy.
d. iot show aiy value for the subsidiary's pre-existin noodwill.

2. Which of the followinn is correct about treatment of preacquisiton earninns on consolidated fnancial
statements?
Statement I. Exclude the subsidiary sales aid expeises prior to acquisitoi from coisolidated sales aid expeises;
Statement II. Iiclude the subsidiary sales aid expeises prior to acquisitoi aid deduct pre-acquisitoi iicome as a
separate item.
a. I oily
b. II only
c. I or II
d. Neither I ior II

3. The acquisiton of treasury stock by a subsidiary above book value:

a. Iicreases the pareit’s share of subsidiary book value aid decreases the pareit’s owiership perceitane
b. Iicreases the pareit’s share of subsidiary book value aid iicreases the pareit’s owiership perceitane
c. Decreases the parent’s share of subsidiary book value and increases the parent’s ownership percentane
d. Decreases the pareit’s share of subsidiary book value aid decreases the pareit’s owiership perceitane

4. How does an acquirer account for a business combinaton that is achieved in stanes?
a. The acquirer accouits for the busiiess combiiatoi step by step, beniiiiin with step oie.
b. The acquirer atributes to the ioi-coitrolliin iiterest all (ii the acquiree's iet ideitiable assets)
c. The acquirer substtutes the acquisitoi-date fair value of its iiterest ii the acquiree for the acquisitoi-date fair
value of the coisideratoi traisferred to measure noodwill.
d. The acquirer remeasures its previously held equity in the acquiree at acquisiton-date fair value and includes
that amount in computnn for the noodwill.

5. Material constructve nains and losses from intercompany bond holdinns are
a. always assinied to the pareit compaiy because it has coitrol.
b. excluded from the coisolidated iicome statemeit uitl the period ii which they become realized.
c. realized and reconnized from the consolidated entty’s perspectve.
d. realized naiis aid losses from the issuiin afliate’s perspectve.

6. Honeyeater Corporaton owns a 40% interest in Nectar Company, acquired several years ano at a cost equal to
book value and fair value. Nectar sells merchandise to Honeyeater for the frst tme in 2005. In computnn
income from the investee for 2005 under the equity method, Honeyeater uses which equaton?

a. 40% of Nectar’s iicome plus 100% of the uirealized proit ii Hoieyeater's eidiin iiveitory.
b. 40% of Nectar’s iicome less 100% of the uirealized proit ii Hoieyeater's eidiin iiveitory.
c. 40% of Nectar’s iicome plus 40% of the uirealized proit ii Hoieyeater’s eidiin iiveitory.
d. 40% of Nectar’s income less 40% of the unrealized proft in Honeyeater’s endinn inventory.

7. GRACE Co. is preparinn a pro-forma set of fnancial statements afer an acquisiton of PUYO Co. The purchase
price is less than the fair value of the assets acquired. However, the purchase price is nreater than net book
value of the acquired company.

a. GRACE’s noodwill will decrease over tme.

b. GRACE's amortzatoi of iitainible assets will iicrease over tme.
c. PUYO Company's expense is less than depreciaton expense of Grace.
d. PUYO's loss oi the sale of the assets will create a iet loss carry forward.

8. The intercompany purchase of the parent company bonds by a subsidiary has the same efect on the
consolidated fnancial statements as the
 a. pareit's retremeit of the boids usiin fuids from the sale of iew boids to ioi-afliates.
b. pareit's retremeit of the boids usiin fuids from iewly issued commoi stock.
c. purchase of the boids by a ioi-afliate.
d. parent's retrement of the bonds usinn funds from a subsidiary loan.

9. Push-down accountnn requires a subsidiary to use the same accountnn principles as its parent company.

a. results ii a push-up residual accouit oi the subsidiaries books.

b. is required whei the pareit compaiy uses the cost method to accouit for its iivestmeit ii the
subsidiary.
c. is required by the SEC if a subsidiary is wholly owied.
d. Noie of the above

10. Which of the followinn are requirements of preparinn consolidated statements?

Statement 1. All subsidiaries must adopt the accouitin policies of the pareit;

Statement 2. Subsidiaries with actvites which are substaitally difereit to the actvites of other members of the
nroup should iot be coisolidated;

Statement 3. All eitty iiaicial statemeits withii a nroup should (iormally) be prepared to the same accouitin
year eid prior to coisolidatoi;

Statement 4. Uirealized proits withii the nroup must be elimiiated from the coisolidated iiaicial statemeits

a. Statemeits 1 aid 2
b. Statements 3 and 4
c. Statemeits 1, 3 aid 4
d. All statemeits

11. The consideraton transferred in a business combinaton will most likely include which of the followinn?

a. The acquisiton-date fair value of a contnnent consideraton that is dependent upon the occurrence of a
possible, but not probable, future event.
b. A coitineit liability with ai acquisitoi-date fair value but imposes ai improbable outlow that the
acquirer assumes ii a busiiess combiiatoi.
c. The "of-market" value of a reacquired rinht.
d. The traisactoi price ii ai arrainemeit that is primarily for the beieit of the acquirer or the combiied
eitty.

12. PRNT Co. owns 100% of the share capital of the followinn companies. The directors are unsure of whether
the investments should be consolidated. In which of the followinn circumstances would the investment NOT be
consolidated?

a. PRNT has decided to sell its iivestmeit ii ABC Co. as it is loss-makiin; the directors believe its exclusioi
from coisolidatoi would assist users ii predictin the nroup’s future proits.
b. GHI Co. is located in a country where a coup d’état has taken place and PRNT has lost control of the
investment for the foreseeable future.
c. DEF Co. is located ii a couitry where local accouitin staidards are required aid these are iot
compatble with PFRS used by the rest of the nroup.
d. BCD Co. is a iiaicial compaiy (e.n. baik) aid its operatoi is so difereit from the einiieeriin actvites
of the rest of the nroup that it would be meaiiinless to coisolidate it.

13. A newly acquired subsidiary had pre-existnn noodwill on its books. The parent company's consolidated
balance sheet will

a. treat the noodwill similarly to other iitainible assets of the acquired compaiy.
b. always show the pre-existin noodwill of the subsidiary at its book value.
c. iot show aiy value for the subsidiary's pre-existin noodwill.
d. not show any value for the pre-existnn noodwill unless all other assets of the subsidiary are stated at
their full fair value

14. If an afliate purchases bonds in the open market, the intercompany bond liability book value is

a. the par value of the boids plus uiamortzed discouit.

b. the par value of the bonds less the discount or plus the premium and issuance costs at the tme of
issuance.
c. always assinied to the pareit compaiy because it has coitrol.
d. par value.

15. Which of the followinn is a potental abuse that may arise when a business combinaton is accounted for as a
poolinn of interests?

a. Liabilites may be uidervalued whei the price paid by the iivestor is allocated to speciic liabilites.
b. Assets of the buyer may be overvalued whei the price paid by the iivestor is allocated amoin speciic
assets.
c. Earninns of the pooled entty may be increased because of the combinaton only and not as a result of
efcient operatons.
 d. Ai uidue amouit of cost may be assinied to noodwill, thus poteitally allowiin ai uiderstatemeit of
pooled eariiins.

16. In reference to the downstream or upstream sale of depreciable assets, which of the followinn statements is
correct?

a. Upstream sales from the subsidiary to the pareit compaiy always result ii uirealized naiis or losses.
b. Gains and losses appear in the parent-company accounts in the year of sale and must be eliminated by
the parent company in determininn its investment income under the equity method of accountnn.
c. The iiital efect of uirealized naiis aid losses from dowistream sales of depreciable assets is difereit
from the sale of ioi-depreciable assets.
d. Gaiis, but iot losses, appear ii the pareit-compaiy accouits ii the year of sale aid must be elimiiated
by the pareit compaiy ii determiiiin its iivestmeit iicome uider the equity method of accouitin.

17. Accordinn to PFRS for SME’s, the Operatnn ease – Reacquired Rinhts?

a. Relatve to market terms if favourable the acquirer reconnizes an intannible assets

b. Relatve to market terms if favourable the acquirer reconiizes ai iitainible assets or Relatve to market
terms if uifavourable the acquirer reconiizes a liability
c. Relatve to market terms if uifavourable the acquirer reconiizes a liability
d. No equivaleit provisioi.

18. A subsidiary made sales of inventory to its parent at a proft this year. The parent, in turn, sold all but 20
percent of the inventory to unafliated companies, reconnizinn a proft. The amount that should be reported as
cost of noods sold in the consolidated income statement prepared for the year should be:

a. the amouit reported as iitercompaiy sales by the subsidiary.

b. the amouit reported as cost of noods sold by the pareit miius uirealized proit ii the eidiin iiveitory
of the pareit.
c. the amount reported as intercompany sales by the subsidiary minus unrealized proft in the endinn
inventory of the parent.
d. the amouit reported as cost of noods sold by the pareit

19. The material sale of inventory items by a parent company to an afliated company?

a. does not result in consolidated income untl the merchandise is sold to outside partes.
b. eiters the coisolidated reveiue computatoi oily if the traisfer was the result of arm’s leinth
barnaiiiin.
c. afects coisolidated iet iicome uider a periodic iiveitory system but iot uider a perpetual iiveitory
system.
d. does iot require a workiin paper adjustmeit if the merchaidise was traisferred at cost.

20. Given the followinn informaton, how is noodwill from a business combinaton computed under PFRS 3?
A = Consideraton transferred;
B = Non-controllinn interest in net assets of subsidiary;
C = Previously held equity interest;
D = Fair value of net identfable assets of subsidiary;
% = Percentane of ownership acquired by the parent in the subsidiary

a. A+B+C-D
b. (A+B) – [(D x %) – B]
c. A – (D x %)
d. A+C) – (D x %)

21. The acquisiton method of PFRS 3 apply to which of the followinn?

a. Eitty A obtaiis coitrol of Eitty B throunh series of acquisitois of votin iiterests.

b. Eitty A obtaiis coitrol of Eitty B without traisferriin aiy coisideratoi.
c. Eitty A exchaines some of its shares for all the shares of Eitty B.
d. PFRS 3 applies to all are transacton.

22. Which of the followinn statements is incorrect renardinn the consideraton transferred in a business
combinaton, under PFRS for SME’s?

a. It iicludes oily those that are traisferred to the former owiers of the acquiree.
b. It cai be ii the form of cash, ioi-cash assets, the acquirer's owi equity iistrumeits, or a mixture of
these:
c. It is measured at fair value.
d. It iicludes those that are retaiied ii the combiied eitty.

23. In a purchase, the direct acquisiton, indirect acquisiton and security issuance costs are accounted for as
SME's as respectvely:

a. Added to price paid, Expensed ,Deducted from value of security issued

b. Expeised, Expeised , Expeised
 c. Expeised, Expeised , Deducted from value of security issued
d. Added to price paid, Added to price paid, Added to price paid

24. Polk issues common stock to acquire all the assets of the Sam Company on January 1, 20X5. There is a
contnnent share anreement, which states that if the income of the Sam Division exceeds a certain level durinn
20X5 and 20X6, additonal shares will be issued on January 1, 20X7. The impact of issuinn the additonal shares is
to

a. record additonal noodwill.

b. have no efect on asset values, but to reassinn the amounts assinned to equity accounts.
c. increase the price assinned to fxed assets.
d. reduce retaiied eariiins.

25. In which of the followinn cases would consolidaton be inappropriate?

a. Subsidiary's operatois are dissimilar from those of the pareit.

b. The subsidiary is in bankruptcy.
c. The pareit owis 90 perceit of the subsidiary's commoi stock, but all of the subsidiary's ioivotin
preferred stock is held by a siinle iivestor.
d. Subsidiary is foreini.

26. Entty A obtains control over Entty B in a business combinaton. As a result, Entty A reacquires a rinht that it
has previously nranted to Entty B. Which of the followinn is correct?

a. Eitty A reconiizes ai iitainible asset for the reacquired rinht at the "of-market" value of the reacquired
rinht
b. Entty A reconnizes a settlement nain or loss measured at the lower of the settlement amount in the
contract and "of-market" value of the reacquired rinht.
c. Eitty A reconiizes a setlemeit naii or loss depeidiin oi whether the terms of the coitract is favourable
or uifavourable, determiied based oi Eitty B's perspectve, whei compared with market terms.
d. Eitty A subsumes to noodwill the iitainible asset for the reacquired rinht.

27. PFRS 3 requires the use of the acquisiton method in accountnn for all business combinatons. Which of the
followinn is not an applicaton of the acquisiton method?

a. Measuriin the coisideratoi traisferred at fair value.

b. Ideitfyiin the acquirer which is the eitty that obtaiis coitrol over aiother busiiess ii a busiiess
combiiatoi.
c. Determiiiin the acquisitoi date which is the date the acquirer obtaiis coitrol over the acquiree.
d. Measuriin the ioi-coitrolliin iiterest at the NCI's proportoiate share ii the acquiree's iet ideitiable
assets or fair value, whichever is hinher.

28. PFRS 3 requires all identfable intannible assets of the acquired business to be recorded at their fair values.
Many intannible assets that may have been subsumed within noodwill must be now separately valued and
identfed. Under PFRS 3,when would an intannible asset be “identfable”?

a. If it has beei reconiized uider local neierally accepted accouitin priiciples evei thounh it does iot
meet the deiiitoi ii PAS 38.
b. When it meets the defniton of an asset in the Conceptual Framework document only.
c. Where it has beei acquired ii a busiiess combiiatoi
d. Whei it meets the deiiitoi of ai iitainible asset ii PAS 38, Iitainible Assets, aid its fair value cai be
measured reliably.

29. In situatons where there are routne inventory sales between parent companies and subsidiaries, when
preparinn the consolidaton statements, which of the followinn line items is indiferent to the sales beinn either
upstream or downstream?

a. Consolidated nross proft.

b. Coisolidated retaiied eariiins.
c. Noi-coitrolliin iiterest expeise.
d. Coisolidated iet iicome.

30. KINK Co. has acquired an investment in a subsidiary, TWIST Co.,with the view to dispose of this investment
within six months. The Investment in the subsidiary has been classifed as held for sale and is to be accounted
for in accordance with PFRS 5. The subsidiary has never been consolidated. How should the investment in the
subsidiary be treated in the fnancial statements?

a. The subsidiary should iot be coisolidated but PFRS 5 should be used.

b. The subsidiary should remaii of balaice sheet.
c. Equity accouitin should be used.
d. Purchase accouitin should be used.