PFRS 5

Question 1

What is a business combination?

a. A type of investment
b. A transaction where an acquirer gains control of one or more businesses
c. When two companies become subsidiaries of each other
d. The formation of a new company.

Answer 1

b. A transaction where an acquirer gains control of one or more businesses

Question 2

In which of the following scenarios does an acquirer NOT obtain control of an investee?

a. The acquirer has the power to appoint the majority of the investee’s board of directors
b. The acquirer owns more than 50% of the investee’s voting rights
c. The acquirer can cast the majority of votes at the investee’s board meetings
d. The acquirer has an agreement with other investors that gives it control over more than half of the investee’s voting rights.

Answer 2

a. The acquirer has the power to appoint the majority of the investee’s board of directors

Question 3

Which of the following is NOT a way an acquirer can obtain control of an investee?

a. By issuing equity instruments (e.g., stocks)
b. By transferring cash or other assets
c. By incurring liabilities
d. By not issuing any consideration (i.e., by contract alone)

Answer 3

a. By issuing equity instruments (e.g., stocks)

Question 4

What is the accounting term for the investor that obtains control of one or more businesses in a business combination?
a. Acquiree
b. Acquirer
c. Investee
d. Subsidiary.

Answer 4

b. Acquirer

Question 5

Which of the following is NOT a factor to consider when identifying the acquirer in a business combination effected by exchanging equity interests?

a. The entity that issues its equity interests is usually the acquirer.
b. The relative size of the combining entities.
c. The combining entity whose owners receive the largest proportion of the voting rights in the combined entity.
d. All of the above are factors to consider.

Answer 5

a. The entity that issues its equity interests is usually the acquirer.

Question 6

What is the acquisition date according to the image?

a. The date the acquirer is legally formed.
b. The date the acquirer begins negotiations with the acquiree.
c. The date the acquirer obtains control over the acquiree.
d. The date the fair value of the identifiable assets acquired is determined.

Answer 6

c. The date the acquirer obtains control over the acquiree.

Question 7

When is a new entity likely to be identified as the acquirer in a business combination?

a. When one of the combining entities already existed before the combination.
b. When a large minority interest exists in the combined entity.
c. When a new entity is formed to issue equity interests to effect the combination.
d. None of the above.

Answer 7

c. When a new entity is formed to issue equity interests to effect the combination.

Question 8

which of the following is NOT a way to identify the acquirer when a large minority interest exists in the combined entity?

a. The combining entity whose owners receive the largest proportion of the voting rights in the combined entity is likely the acquirer.
b. The holder of the large minority interest is likely the acquirer.
c. The entity that has the ability to select the management team of the combined entity is likely the acquirer.
d. All of the above are ways to identify the acquirer.

Answer 8

b. The holder of the large minority interest is likely the acquirer.