BUSCOM PRELIMS

Question 1

PFRS 3 requires that the contingent liabilities of the acquired entity should be
recognized in the balance sheet at fair value. The existence of contingent liabilities
is often reflected in a lower purchase price. Recognition of such contingent
liabilities will
a. Decrease the value attributed to goodwill, thus decreasing the risk of impairment of goodwill.
b. Decrease the value attributed to goodwill, thus increasing the risk of impairment of goodwill.
c. Increase the value attributed to goodwill, thus decreasing the risk of impairment of goodwill.
d. Increase the value attributed to goodwill, thus increasing the risk of impairment
of goodwill

Answer 1

d. Increase the value attributed to goodwill, thus increasing the risk of impairment
of goodwill

Question 2

Are the following statements about an acquisition true or false, according to PFRS 3 Business combinations?
I. The acquirer should recognize the acquiree’s contingent liabilities if certain conditions are met.
II. The acquirer should recognize the acquiree’s contingent assets if certain conditions are met.
a. False, False
b. False, True
c. True, False
d. True, True

Answer 2

c. True, False

Question 3

An acquirer should at the acquisition date recognize goodwill acquired in a business combination as an asset. Goodwill should be accounted for as follows:
a. Recognize as an intangible asset and amortize over its useful life.
b. Write off against retained earnings.
c. Recognize as an intangible asset and impairment test when a trigger event occurs.
d. Recognize as an intangible asset and annually impairment test (or more frequently if impairment is indicated)

Answer 3

d. Recognize as an intangible asset and annually impairment test (or more frequently if impairment is indicated)

Question 4

On September 1, 20x1, TEPID Co. acquired LUKEWARM Co. in a business combination that resulted to goodwill. By December 31, 20x1, the initial allocation
of goodwill is not yet completed. According to PAS 36, TEPID should
a. complete the initial allocation before the end of December 31, 20x1.
b. complete the initial allocation before the end of December 31, 20x2.
c. complete the initial allocation before the end of November 30, 20x1.
d. complete the initial allocation before the end of September 1, 20x2.

Answer 4

b. complete the initial allocation before the end of December 31, 20x2.

Question 5

Which of the following methods must be applied in accounting for business combinations under PFRS 3?
a. acquirer method
b. acquisition method
c. purchase method
d. pooling of interest

Answer 5

b. acquisition method

Question 6

The company that obtains control over another company in a business combination transaction is referred to as the
a. acquirer
b. parent
c. subsidiary
d. a and b

Answer 6

d. a and b

Question 7

According to PFRS 3, which of the following transaction costs would increase the amount of goodwill from a business combination?
a. legal fees, accounting fees and similar costs
b. issuance costs of equity securities
c. issuance costs of debt instruments
d. none of these

Answer 7

d. none of these

Question 8

This refers to the additional consideration for a business combination to be given to the acquiree upon the happening of a contingency which is pre-agreed at
the acquisition date.
a. Contingent liability
b. Contingent asset
c. Contingent consideration
d. Additional compensation

Answer 8

Contingent consideration

Question 9

In a business combination accounted for under the acquisition method, the fair
value of the net identifiable assets acquired exceeded the consideration
transferred. How should the excess fair value be reported?
a. As negative goodwill, recognized in profit or loss in the period the business
combination occurred.
b. As an extraordinary gain.
c. As a reduction of the values assigned to noncurrent assets and an extraordinary
gain for any unallocated portion.
d. As positive goodwill.

Answer 9

As negative goodwill, recognized in profit or loss in the period the business
combination occurred.

Question 10

The costs of issuing equity securities in a business combination are
a. expensed
b. treated as direct reduction in equity
c. included in the initial measurement of the credit to share capital account
d. b and c

Answer 10

treated as direct reduction in equity

Question 11

Goodwill may be capitalized
a. only when it arises in a business combination.
b. only when it is created internally.
c. only when it is purchased
d. on any of these cases.

Answer 11

only when it arises in a business combination.

Question 12

A contingent liability assumed in a business combination is recognized
a. if it is a present obligation that arises from past events and
b. if its fair value can be measured reliably.
c. even if it has an improbable outflow of resources embodying economic benefits.
d. All of these

Answer 12

All of these

Question 13

How shall the parent corporation present the Non-controlling Interest (NCI) in the Consolidated Statement of Financial Position?
a. It shall be presented within the Consolidated Stockholders’ Equity, separately from the equity of the owners of the parent
b. It shall be presented as contra equity account like treasury shares and subscription receivable
c. It shall be presented as non-current asset
d. It shall be presented as non-current liabilit

Answer 13

It shall be presented within the Consolidated Stockholders’ Equity, separately from the equity of the owners of the parent

Question 14

How should an entity account for the incomplete information in preparing the financial statements immediately after the acquisition?
a. Record the uncertain items at a provisional amount measured at the date of acquisition
b. Record a contra account to the investment account for the amounts involved
c. Record the uncertain items at the carrying amount of the acquiree
d. Do not record the uncertain items until complete information is available

Answer 14

Record the uncertain items at a provisional amount measured at the date of acquisition

Question 15

A business combination may be legally structured as a merger, a consolidation, an investment in stock, or a direct acquisition of assets. Which of the following describes a business combination that is legally structured as a merger?
a. An investor-investee relationship is established
b. A parent-subsidiary relationship is established
c. The surviving company is one of the two combining companies
d. The surviving company is neither of the two combining companies

Answer 15

The surviving company is one of the two combining companies

Question 16

Polk issues common stock to acquire all the assets of the Sam Company on January 1, 2020. There is a contingent share agreement, which states that if the income of the Sam division
exceeds a certain level during 2020 and 2021, additional shares will be issued on January 1, 2022. The impact of issuing the additional share is to
a. Have no effect on asset values, but to reassign the amounts assigned to equity accounts
b. Record additional goodwill
c. Increase the price assigned to fixed assets
d. Reduce retained earnings

Answer 16

Have no effect on asset values, but to reassign the amounts assigned to equity accounts

Question 17

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

Answer 17

It shall be expensed as incurred and presented as part of profit or loss