QUIZ 1: BUSINESS COMBINATIONS (PFRS 3)

Date of Acquisition

1. PFRS 3 defines it as a transaction or other event in which an acquirer obtains control of

one or more businesses.
A. Business combination
B. Consolidation
C. Merger
D. Acquisition of net assets

2. Under PFRS 3, how shall an entity (acquirer) account for each business combination?
A. Pooling of interest method
B. Proportionate consolidation method
C. Acquisition method
D. Equity method

3. It refers to the date on which the acquirer obtains control of the acquiree.
A. Business combination date
B. Acquisition date
C. Control date
D. Consolidation date

4. Under PFRS 3, what is the treatment acquisition related costs in a business combination?
A. It shall be expensed as incurred and presented as part of profit or loss
B. It shall be capitalized as part of consideration given up in computation of goodwill or
gain on bargain purchase
C. It shall be debited to share premium
D. It shall be charged directly to retained earnings

5. If the initial amounting for business combination is incomplete by the end of reporting
period in which the combination occurs, the acquirer shall report in its financial statements
provisional amounts for the items which the accounting in incomplete. What is the
maximum term or period of the measurement period?
A. One year or 12 months from the acquisition date
B. 6 months from the acquisition date
C. 3 months from the acquisition date
D. 1 month from the acquisition date

6. In different types of business combination, which of the following is not considered as an

acquirer?
A. The remaining corporation in case of merger
B. The absorbed corporation in case of consolidation
C. The corporation that acquires more than 50% of the other corporation’s ordinary
shares
D. The corporation that controls the acquiree

Use the following details to answer number 7 to 10:

Jugs Inc. acquired the net assets of Teddy Corp. by issuing 10,000 ordinary shares with
par value of P10 and bonds payable with face amount of P500,000. The bonds are
classified as financial liability at amortized cost.

At the time of acquisition, the ordinary shares are publicly quoted at P20 per share. On
the other hand, the bonds payable, classified as financial liability at amortized cost, are
trading at 110.

Jugs Inc. paid P10,000 share issuance costs and P20,000 bond issue costs. Jugs Inc.
also paid P40,000 acquisition related costs and P30,000 indirect costs of business
combination.

Before the date of acquisition, Jugs Inc. and Teddy Corp. reported the following data:

1
 Jugs Inc. Teddy Corp.
Current Assets 1,000,000 500,000
Noncurrent assets 2,000,000 1,000,000
Current liabilities 200,000 400,000
Noncurrent liabilities 300,000 500,000
Ordinary shares 500,000 200,00
Share premium 1,200,000 300,000
Retained earnings 800,000 100,000

At the time of acquisition, the current assets of Jugs Inc. have fair value of P1,200,000
while the noncurrent assets of Teddy Corp. have a fair value of P1,300,000. On the same
date, the current liabilities of Teddy Corp. have fair value of P600,000 while the noncurrent
liabilities of Jugs Inc. have fair value of P500,000.

7. What is the goodwill or gain on bargain purchase arising from business combination?
A. 50,000 goodwill
B. 150,000 gain on bargain purchase
C. 120,000 goodwill
D. 70,000 gain on bargain purchase

8. What is Jugs Inc.’s amount of total assets after the business combination?
A. 4,520,000
B. 4,810,000
C. 4,750,000
D. 4,440,000

9. What total amount should be expensed as incurred at the time of business combination?
A. 20,000
B. 70,000
C. 30,000
D. 50,000

10. What is Jugs Inc.’s amount of total liabilities after the business combination?
A. 2,240,000
B. 2,150,000
C. 2,320,000
D. 2,130,000

11. Nyljohn Inc. stockholders’ equity as of December 31, 2024 is P7,308,000. On January 1,
2025, Nyljohn acquires 30% of Vice Company’s ordinary shares for P540,000 cash and
by issuing its own shares with a fair value of P1,350,000. Nyljohn acquired significant
influence over Vice as a result of the stock acquisition. After four months, Nyljohn
purchases another 60% of Vice’s ordinary shares for a cash payment of P3,942,000. On
this date, Vice reports identifiable assets with carrying value of P6,480,000 and fair value
of P11,520,000 and it has liabilities with a book value and fair value of P3,240,000.

At the acquisition date, net loss reported by Vice for the four-month ended amounted to
P900,000. The fair value of the 10% non-controlling interest is P1,296,000. Non-controlling
interest is valued using the proportionate basis. Nyljohn also paid the following: P90,000
for SLB legal fees, P72,000 for finder’s fee, P77,400 for accountant’s fee, P64,800 for
audit fee for SEC registration of stock issued and P19,800 for printing of stock certificates.

Immediately after the business combination, how much is the consolidated total equity?
A. 9,954,000
B. 10,782,000
C. 10,431,000
D. 9,243,000

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 Use the following details to answer number 12 to 13:

Paano acquired 80,000 out of 100,000 outstanding ordinary shares of Bakit which enabled
the former to obtain control of the latter at an acquisition price of P1,000,000. Paano paid
P100,000 acquisition related costs and P50,000 indirect costs of business combination.
At the date of business combination, the net assets of Bakit are reported at P1,600,000.
An asset of Bakit is overvalued by P60,000 while one liability is undervalued by P40,000.

12. What is the initial measurement of the non-controlling interest in net assets in the
consolidated statement of financial position?
A. 320,000
B. 300,000
C. 250,000
D. 316,000

13. What is the goodwill or gain on bargain purchase arising from the acquisition?
A. 250,000 gain
B. 150,000 gain
C. 50,000 goodwill
D. 200,000 gain

14. As of the acquisition date, the acquirer shall recognize, separately from goodwill, the
identifiable assets acquired, the liabilities assumed and any non-controlling interest in the
acquire. As a general rule, the acquirer shall measure the identifiable assets acquired and
the liabilities assumed at their
A. Acquisition date-fair values
B. Acquisition date-book values
C. Acquisition date-face values
D. Acquisition date-carrying values

15. What is the term used for the business combination where all combining entities transfer
their net assets to a newly formed entity?
A. True merger C. Roll up transaction
B. Legal merger D. Spin off

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