PFRS 3

Question 1

A business combination may be structured in all, except

a. One or more businesses become subsidiaries of an acquirer.
b. One entity transfers net assets to another entity
c. A group of former owners of one of the combining entities obtains control of the combined entity
d. An entity acquires assets that are not a business

Answer 1

d. An entity acquires assets that are not a business

Question 2

It is a transaction or other event in which an acquirer obtains control of one or more businesses.

a. Business combination
b. Merger
c. Consolidation
d. Controlling interest

Answer 2

a. Business combination

Question 3

The entity that obtains control of an acquiree is the

a. Acquirer
b. Investor
c.Shareholder
d. Owner

Answer 3

a. Acquirer

Question 4

An entity shall account for all business combination by applying

a. Acquisition method
b. Pooling method
c. Proportional consolidation
d. Equity method

Answer 4

a. Acquisition method

Question 5

Which statement is incorrect concerning an acquirer?

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

Answer 5

d. If a new entity is formed to issue equity interests to effect a business combination, the new entity formed is necessarily the acquirer.

Question 6

Acquisition costs incurred and related to a business combination should be

a. Allocated on a prorata basis to the nonmonetary assets acquired.
b. Capitalized as part of goodwill and tested annually for impairment.
c. Capitalized as other asset and amortized over five years.
d. Expensed as incurred in the current period

Answer 6

d. Expensed as incurred in the current period

Question 7

Which statement in relation to an acquisition date of a business combination is incorrect?

a. The acquisition date is the date on which an acquirer obtains control over the acquiree.
b. The acquisition date is normally the “closing date” or the date on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree.
c. Where several dates are key to a business combination, the date on which control passes is the acquisition date.
d. The acquisition date can never precede the closing date

Answer 7

d. The acquisition date can never precede the closing date

Question 8

What is the term for the business combination where all combining entities transfer their net assets to a newly formed entity?

a. True merger
b. Legal merger
c. Roll up transaction
d. Spin off

Answer 8

c. Roll up transaction

Question 9

In a business combination, goodwill is measured as the excess of

a. The consideration transferred over the identifiable net assets acquired.
b. The total of the consideration transferred and the amount of any noncontrolling interest in the acquiree over the identifiable net assets acquired.
c. The total of the consideration received and the fair value of the previously held interest in the acquiree over the identifiable net assets acquired.
d. The total of the consideration transferred, the amount of any noncontrolling interest in the acquiree and the fair value of previously held interest in the acquiree over the identifiable net assets acquired.

Answer 9

d. The total of the consideration transferred, the amount of any noncontrolling interest in the acquiree and the fair value of previously held interest in the acquiree over the identifiable net assets acquired.

Question 10

Which statement is true in relation to business combination achieved in stages?

a. The pre-existing equity interest shall be remeasured at fair value with any resulting gain or loss included in profit or loss.
b. The pre-existing equity interest shall be remeasured at fair value with any resulting gain or loss included in other comprehensive income.
c. The pre-existing interest shall not be remeasured.
d. The pre-existing interest shall be remeasured at fair value with any resulting gain or loss recognized in retained earnings.

Answer 10

a. The pre-existing equity interest shall be remeasured at fair value with any resulting gain or loss included in profit or loss.

Question 11

The noncontrolling interest should be recorded at

a. The fair value of the shares held by the acquirer.
b. The fair value of the shares not held by the acquirer or the proportionate share of the fair value of net identifiable assets of acquiree.
c. The proportionate share of the carrying amount of net identifiable assets of acquiree.
d. The fair value of the shares held by noncontrolling interest plus goodwill.

Answer 11

b. The fair value of the shares not held by the acquirer or the proportionate share of the fair value of net identifiable assets of acquiree.

Question 12

Which of the following should be included in the consideration transferred in a business combination?

a. Cost of maintaining an acquisition department.
b. Fees paid to accountants to effect the combination.
c. Both cost of maintaining an acquisition department and fees paid to accountants to effect the combination.
d. Neither cost of maintaining an acquisition department nor fees paid to accountants to effect the combination.

Answer 12

d. Neither cost of maintaining an acquisition department nor fees paid to accountants to effect the combination.

Question 13

What is meant by full goodwill method?

a. Goodwill which relates to the parent interest.
b. Goodwill which relates to the noncontrolling interest and the controlling interest.
c. Goodwill which relates to the noncontrolling interest.
d. A bargain purchase.

Answer 13

b. Goodwill which relates to the noncontrolling interest and the controlling interest.

Question 14

Which would not contribute to negative good will?

a. Errors in measuring the fair value of the acquiree’s net identifiable assets.
b. A bargain purchase.
c. A requirement in a standard to measure net assets acquired at a value other than fair value.
d. Making acquisitions at the top of a “bull” market.

Answer 14

d. Making acquisitions at the top of a “bull” market.

Question 15

The excess of the fair value of net assets required over acquisitipon cost should be reported as

a. Negative goodwill
b. Share premium
c. Reduction of the values assigned to certain assets and gain for any unallocated portion
d. Gain from bargain purchase recognized in profit or loss

Answer 15

d. Gain from bargain purchase recognized in profit or loss

Question 16

Which would require the use of the acquisition method?

a. The acquisition of a group of assets
b. The formation of a joint venture
c. The purchase of more than 50% of a business
d. All would require the acquisition method.

Answer 16

c. The purchase of more than 50% of a business

Question 17

Which is not required in business combination?

a. Prepare proforma financial statements.
b. Determine the the acquisition date.
c. Identify the acquirer.
d. Expense the costs and general expenses.

Answer 17

a. Prepare proforma financial statements.

Question 18

What is the acquisition date for a business combination?

a. When the acquirer signs the contract to purchase the business.
b. When the acquirer obtains control of the acquiree.
c. When all contingencies are resolved.
d. When the acquirer purchased more than 20% of the acquiree.

Answer 18

b. When the acquirer obtains control of the acquiree.

Question 19

What is the requirement with respect to the allocation of the cost of a business acquisition?

Answer 19

b. Cost to be allocated based on fair value

Question 20

How should the acquirer account for the incomplete information in preparing the financial statements immediately after the acquisition?

Answer 20

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