Prelims

Question 1

A business combination occurs when…

Answer 1

1. One company acquires another
2. 2 or more companies merge into one

Question 2

The company that obtains control over the other.

Answer 2

Parent / Acquirer

Question 3

The other company that is controlled

Answer 3

Subsidiary / Acquiree

Question 4

Business combinations can be carried out through…

Answer 4

1. Asset acquisition
2. Stock acquisition

Question 5

The acquirer purchases the assets and assumes the liabilities of the acquirer.

Answer 5

Asset Acquisition

Question 6

Legal forms of Combination under asset acquisition

Answer 6

1. Merger
2. Consolidation

Question 7

Occurs when one corporation takes over all the operations of another business entity and that other entity is dissolved.

Answer 7

Merger

Question 8

Occurs when a new corporation is formed to take over the assets and operations of two or more separate entities

Answer 8

Consolidation

Question 9

The acquirer obtains control over the acquiree by purchasing stocks or majority ownership interest that is more than 50% in the voting rights of the acquiree.

Answer 9

Stock acquisition

Question 10

When the parent records the ownership interest acquired as…

Answer 10

Investment in Subsidiary

Question 11

3 types of Business Combination

Answer 11

1. Horizontal Integration
2. Vertical Integration
3. Conglomeration

Question 12

Same business lines and markets

Answer 12

Horizontal Integration

Question 13

Operations in different, but successive stages of production or distribution, or both

Answer 13

Vertical Integration

Question 14

Unrelated and diverse products or services

Answer 14

Conglomeration

Question 15

Advantages of Business combinations

Answer 15

1. Competition is eliminated or lessened
2. Synergy
3. Increased business opportunity and earning potential
4. Reduction of operating cost
5. Combination utilized economies scale (Increases in production efficiency)
6. Cost savings on business expansion
7. Favorable tax implications

Question 16

Business combination are accounted for under…

Answer 16

PFRS 3

Question 17

The objective of PFRS …

Answer 17

To enhance the relevance, reliability, and comparability of information provided about business combinations and their effects

Question 18

PFRS 3 does not apply to the following:

Answer 18

1. Formation of joint venture
2. Acquisition of asset and related liability that does not constitute a business
3. Combination of entities under common control

Question 19

Essential elements in the definition of business combinations

Answer 19

1. Control
2. Business

Question 20

Usually exists when the acquirer holds more than 50% of ownership interest.

Answer 20

Control

Question 21

Other ways control can be obtained:

Answer 21

1. The acquirer has the power to appoint or remove the majority of the board of directors of the acquiree
2. The acquirer has the power to cast majority votes at board meetings
3. The acquirer has the power over more than 50% of voting rights because of an agreement with other investors
4. The acquirer has the power to control the acquiree’s operating and financial policies.

Question 22

Defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities.

Answer 22

Business

Question 23

Elements of business

Answer 23

1. Input
2. Process
3. Output

Question 24

The acquisition method

Answer 24

1. Identifying the acquirer
2. Determining the acquisition date
3. Recognizing and measuring goodwill or an income from the acquisition

Question 25

Recognizing and measuring goodwill or an income from the acquisition

Answer 25

1. Consideration transferred
2. Non-controlling interest in the acquirer
3. Previously held equity interest in the acquirer
4. Identifiable assets acquired, the liabilities assumed on the business combination

Question 26

Examples of potential forms of consideration

Answer 26

1. Cash
2. Non-cash assets
3. Equity Instrument
4. A business or subsidiary of the acquirer
5. Contingent consideration

Question 27

Consideration Transferred by the Acquirer

Answer 27

Shall be measured at Fair Value at the date of acquisition

Question 28

Acquisition-related cost

Answer 28

Acquirer incurs related to business
combination and should be expensed immediately.

Question 29

Examples of Acquisition-related cost

Answer 29

1. Finder’s fees
2. Professional fees
3. General administrative cost
4. Cost of registering and issuing debt and equity securities

Question 30

situations when acquisition-related cost is not expensed immediately

Answer 30

1. Cost to issue debt securities measured at amortized cost (deducted to carrying amount of debt)
2. Cost to issue equity securities (deducted to the related share premium, of none, to the retained earnings)

Question 31

Ownership position wherein a shareholder owns less than 50% of outstanding shares and has no control over decisions

Answer 31

Non-controlling interest / minority interest

Question 32

A non-controlling interest should be measured either at..

Answer 32

1. Fair Value
2. The non-controlling interest’s proportionate share of acquirer’s identifiable net assets

Question 33

An acquirer may obtain control over the acquiree in which it held some equity interest at the time of obtaining control.

Answer 33

Previously held equity interest