PFRS 3 Business Combinations

Question 1

What is PFRS3?

Answer 1

Business Combinations

Question 2

According to PFRS 3 it is “a transaction or other event in which an acquirer obtains control of one or more businesses.”

Answer 2

business combination

Question 3

An investor controls an ________ when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power
over the investee.

Answer 3

investee

Question 4

Control is normally presumed to exist when the ownership interest acquired in the voting rights of the acquiree is ________

Answer 4

more than 50% (or 51% or more)

Question 5

Control may exist even if the acquirer holds less than 50% interest in the voting rights of acquiree, such as
in the following cases:

Answer 5

1. The acquirer has the power to appoint or remove the majority of the
   board of directors of the acquiree; or
2. The acquirer has the power to cast the majority of votes at board
   meetings or equivalent bodies within the acquiree; or
3. The acquirer has power over more than half of the voting rights of the
   acquiree because of an agreement with other investors; or
4. The acquirer has power to control the financial and operating policies
   of the acquiree because of a law or an agreement

Question 6

Accounting for business combinations
• Business combinations are accounted for using the ________.

Answer 6

acquisition method

Question 7

Business Combination usinng acquisition method requires the following:

Answer 7

1. Identifying the acquirer;
2. Determining the acquisition date; and
3. Recognizing and measuring goodwill. This requires recognizing and measuring the following:
   a. Consideration transferred
   b. Non-controlling interest in the acquiree
   c. Previously held equity interest in the acquiree
   d. Identifiable assets acquired and liabilities assumed on the
   business combination

Question 8

is the entity that obtains control of the acquiree.

Answer 8

acquirer

Question 9

is the business that the acquirer obtains control of in a business combination.

Answer 9

acquiree

Question 10

In identifying the acquirer

The acquirer is normally the entity that:

Answer 10

a. Transfers cash or other assets and incurs liabilities;
b. Issues its equity interests (except in reverse acquisitions);
c. Receives the largest portion of the voting rights;
d. Has the ability to elect or appoint or to remove a majority ;
e. Dominates the management of the combined entity;
f. Significantly larger of the combining entities;
g. Initiated the combination

Question 11

to determine the acquisition date:
• The acquisition date is the date on which the ??

Answer 11

acquirer obtains control of the acquiree.

Question 12

Recognizing and measuring goodwill

Formula:

Answer 12

1. Consideration transferred xx
2. Non-controlling interest in the acquiree (NCI) xx
3. Previously held equity interest in the acquiree xx
4. Total xx
5. Less: Fair value of net identifiable assets acquired (xx)
   = Goodwill / (Gain on a bargain purchase) xx

Question 13

On acquisition date, the acquirer recognizes a resulting:

Answer 13

a. Goodwill as an asset.
b. Gain on a bargain purchase as gain in profit or loss.

Question 14

Consideration transferred
• The consideration transferred in a business combination is measured at
__________

Answer 14

fair value.

Question 15

Examples of potential forms of consideration include:

Answer 15

1. Cash,
2. Other assets,
3. A business or a subsidiary of the acquirer,
4. Contingent consideration,
5. Ordinary or preference equity instruments, options, warrants and member interests of mutual entities

Question 16

are costs the acquirer incurs to effect a business combination.

Answer 16

Acquisition-related costs

Question 17

Acquisition-related costs are recognized as ___________, except for the following:
a. Costs to issue debt securities measured at amortized cost
– included in the initial measurement of the resulting
financial liability.
b. Costs to issue equity securities – are accounted for as
deduction from share premium. If share premium is
insufficient, the issue costs are deducted from retained
earnings

Answer 17

expenses in the periods in which they are incurred

Question 18

Acquisition-related costs are recognized as expenses in the periods in which they are incurred, except for the following:

Answer 18

a. Costs to issue debt securities measured at amortized cost
b. Costs to issue equity securities

Question 19

– included in the initial measurement of the resulting financial liability.

Answer 19

Costs to issue debt securities measured at amortized cost

Question 20

– are accounted for as deduction from share premium. If share premium is insufficient, the ___________?

Answer 20

Costs to issue equity securities

issue costs are deducted from retained earnings

Question 21

is the equity in a subsidiary not attributable, directly or indirectly, to a parent.

Answer 21

Non-controlling interest (NCI)

Question 22

NCI is measured either at:

Answer 22

a. Fair value, or
b. The NCI’s proportionate share of the
acquiree’s identifiable net assets

Question 23

pertains to any interest held by the acquirer before the business combination

Answer 23

Previously held equity interest in
the acquiree

Question 24

Net identifiable assets acquired
• On acquisition date, the acquirer shall

Answer 24

recognize, separately from goodwill, the

-identifiable assets acquired
-the liabilities assumed and
-any non controlling interest in the acquiree.

Question 25

Any unidentifiable asset of the acquiree (e.g.,any recorded goodwill by the acquiree) shall ____ recognized. not be or be?

Answer 25

not be

Question 26

Net Identifiable assets acquired The identifiable assets acquired and the liabilities assumed are measured at their ________________

Answer 26

acquisition-date fair value