Business Combination

Test I Modified True or False. Correct the statement of the incorrect answer (2 pt. each 20
pts total).
1. Entity A issues 1,000 shares in exchange for all the outstanding shares of Entity B. after
the transaction, the former owners of Entity B become owners of 1,000 shares out of the
10,000 outstanding shares of Entity A. Entity A will own all of the shares of Entity B. this
transaction is not a business combination that is accounted for under PFRS 3.
________________________________________________________________

Using the info below, answer 2-4.

Entity A issues shares in exchange for 100% interest in Entity B’s net identifiable assets with
fair value of 80. As a result of the business combination, Entity A’s share capital and share
premium increased by 30 and 70, respectively.
2. The aggregate par value of the shares issued is 30.
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3. The fair value of the consideration transferred is 70.
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4. The business combination resulted to goodwill of 10. ________
________________________________________________________________

Using the info below, answer 5-8.

Once upon a time, Entity A acquired 20% interest in Entity B. after sometime, Entity A
acquired additional 50% interest for 100, at which time, Entity B’s net identifiable assets have
a fair value of 180, the previous investment of Entity A has a carrying amount of 30 and fair
value of 30, and the NCI has a fair value of 60.
5. The transaction described above is a business combination achieved in stages or step
acquisition.
________________________________________________________________
6. The 20% previous interest is ignored when computing for goodwill.
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7. Entity A recognizes a remeasurement gain of 10 in profit or loss. ________
________________________________________________________________
8. The goodwill is 20. ________
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9. Entity A owns 40% interest in Entity B. Entity A enters into an agreement with Entity C,
owner of 20% interest in Entity B, whereby Entity A will exercise all of the Entity C’s
voting interests in Entity B for a period of 25 years. The agreement between Entity A and

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 Entity C cannot result to a business combination between Entity A and Entity B, according
to PFRS 3.
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10. There can be a business combination that results to a 100% non-controlling interest.
________________________________________________________________

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 Test II Choose the letter that corresponds to the BEST answer Write only the CAPITAL letter
of your answer (1 pt. each 30 pts total).

1. A corporation is specifically organized to acquire the assets and liabilities of two or more previously
existing companies. A new corporation is formed and the original companies are dissolved. This is
known as
A. Consolidation
B. Merger
C. Acquisition method
D. None of these

2. A business combination whereby the company taking over the properties of other companies retains
its identity and continuous as larger unit and the other companies are dissolved is known as
A. Consolidation
B. Merger
C. Acquisition method
D. None of these

3. Which statement in incorrect concerning acquirer?

A. An acquirer shall be identified for all business combinations
B. The acquirer purchases net assets and recognizes the assets acquired and liabilities and
contingent liabilities assumed, including those not previously recognized by the acquiree.
C. Because the purchase method views a business combination prom the acquirer’s perspective,
it is assumed that one of the parties to the transaction can be identified as the acquiree.
D. the acquiree is the combining entity that obtains significant influence over the other
combining entities or businesses.

4. In a business combination, the acquirer is the entity that:

A. Obtains control of the acquiree
B. Concedes control over the acquired entities
C. Sells the acquired entity.
D. The acquiree obtains control of in a business combination.

5. The date on which the acquirer obtains control of the acquiree is referred to as the:
A. Business combination date.
B. Acquisition date.
C. Control date.
D. Purchase date.

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 6. Where the acquirer purchases the assets and assumes the liabilities of another entity, it does not
deed to consider the measurement of:
A. The liabilities assumed.
B. The identifiable assets.
C. The equity of the acquiree.
D. Goodwill of a gain form bargain purchase.

7. Recognition of an asset occurs if it is probable that future economic benefits will flow to the entity
and
A. It has a value that can be measured with reliability.
B. It is a non-current asset.
C. It has a value that can be measured with certainty.
D. It is a current asset.

8. Which of the following is an example of asset recognized by the acquirer as part of a business
combination but that is not recognized by the acquiree.
A. Inventory
B. Land
C. Buildings
D. Internally generated brands

9. The price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at measurement date is defined as
A. Market value
B. Carrying value
C. Fair value
D. Present value

10. The cost approach to determining fair value involves:

A. Determining an amount which reflects the amount currently needed to replace the
service capacity of an asset.
B. Using prices generated by market transactions involving identical or comparable assets or
liabilities.
C. Converting future amounts such as cash flows to a current, discounted amount

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