NAME :

CLASS :
Business Combination - Theories
DATE :
35 Questions

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

businesses.

A Consolidation B Merger

C Business Combination D Controlling Interest

2. This is define as an integrated set of activities and assets capable of being

conducted and managed for the purpose of providing a return directly to investors or
other owners, members or participants.

A Transaction B Business

C Undertaking D Isolated event

3. An acquirer might obtain control of an acquiree in all of the following, except

By transferring cash, cash equivalents By issuing equity interests

A B
and other assets

By acquiring interest in a joint venture By contract alone, even without

C D
consideration

4. A business combination may be structed in all of the following, except

One entity transfers net assets to One or more businesses become

A B
another entity subsidiaries of an acquirer

An entity acquires assets that are not a A group of former owners of one of the
C business D combining entities obtain control of the
combined entity
5. It is a business combination in which all of the combining entities or businesses
ultimately are controlled by the same party or parties both before and after the
combination and that control is not transitory.

A Merger of equals B True merger

Consolidation Combination of entities or businesses

C D
under common control

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

A Roll up transaction B Legal merger

C Spin off D True merger

7. Which statement best describes the term control?

The mutual sharing of risks and The power to participate in the

A benifits B financial and operating policy
decisions of an entity

The power to govern the financial and The holding of a significant proportion
C operating policies of an entity so as to D of the share capital in another entity
obtain benefits from the activities

8. This is defined as the entity that obtains control of an acquiree.

A Acquirer B Shareholder

C Investor D Owner

9. This is defined as holders of equity interest of investor-owned entities, or members

and participants in mutual entities.

A Owners B Investors

C Participants D Shareholders
10. An entity shall account for all business combinations by applying

A Acquisition method B Proportional consideration

C Equity method D Pooling method

11. The acquisition method of accounting for a business combination requires all of the
following, except

A Identifying the acquirer B Determining the acquisition date

Recognizing and measuring the Recognizing goodwill or gain from

identifiable assets acquired, the bargain purchase.
C liabilities assumed and the D
noncontrolling interest in the acquiree
at carrying amount

12. Which statement is incorrect concerning an acquirer?

If a new entity is formed to issue entity The acquirer is usually the combing
interests to effect a business entity whose relative size is
A B
combination, the new entity formed is significantly greater than that of the
necessarily the acquirer other combining entity or entities

In a business combination effected by In a business combination effected by

transferring cash or other assets, the issuing equity interests, the acquirer is
C D
acquirer is usually the entity that usually the entity that issues the equity
transfers the cash or other assets interests
13. Which statement in relation to an acquisition date of a business combination is
incorrect?

The acquisition date can never precede Where several dates are key to a
the closing date business combination, the date on
A B
which control passes is the acquisition
date.

The acquisition date is the date on The acquisition date is normally the
which an acquirer obtains control over closing date or the date on which the
C the acquiree D acquirer legally transfers the
consideration, acquires the assets and
assumes the liabilities of the acquiree.

14. What is the initial measurement of the identifiable assets and liabilities assumed in a
business combination?

Acquisition date present value of cash Acquisition date fair value

A B
flows

C Acquisition date historical cost D Acquisition date carrying amount

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

The total of the consideration received The total of the consideration

and the fair value of the previously held transferred, the amount of any
interest in the acquiree over the noncontrolling interest in the acquiree
A B
identifiable net assets acquired and the fair value of previously held
interest in the acquire over the
identifiable net assets acquired

The consideration transferred over the The total of the consideration

identifiable net assets acquired. transferred and the amount of any
C D noncontrolling interest in the acquiree
over the identifiable net assets
acquired
16. Which statement is not true in relation to business combination?

All of the statements are not true. The acquirer shall recognize the
A B acquiree's contingent liabilities if
certain conditions are met

The acquirer shall recognize the The acquirer shall recognize acquiree's
acquisition-date fair value of any contingent assets if certain conditions
C contingent consideration as part of the D are met
consideration transferred in a business
combination

17. When should an acquirer derecognize a contingent liability recognized as the result of
an acquisition?

When it is reasonably possible that the When the contingency is resolved

A B
liability will not require payment

When it becomes more likely than not At the end of the year of acquisition
C D
that the entity will not be liable

18. Acquisition costs incurred and related to a business combination should be

Capitalized as part of goodwill and Capitalized as other asset and

A B
tested annually for impairment amortized over five years

Allocated on a prorata basis to the Expensed as incurred in the current

C D
nonmonetary assets acquired period

19. When an acquirer had 30% equity interest in an acquiree and subsequently purchased
another 25% equity interest in order to gain control, the transaction is known as

Business combination off entities Business combination achieved in

A B
under common control stages

C Business combination by installment D Step by step acquisition

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

The pre-existing interest shall be The pre-existing interest shall not be

measured at fair value with any remeasured
A B
resulting gain or loss recognized in
retained earnings.

The pre-existing equity interest shall be The pre-existing equity interest shall be
remeasured at fair value with any remeasured at fair value with any
C D
resulting gain or loss included in profit resulting gain or loss included in other
or loss comprehensive income

21. The noncontrolling interest should be recorded at what amount?

The proportionate share of the carrying The fair value of the shares not held by
amount of net identifiable assets of the acquirer or the proportionate share
A B
acquiree of the fair value of net identifiable
assets of acquiree

The fair value of the shares held by the The fair value of the shares held by
C D
acquirer noncontrolling interest plus goodwill

22. Which of the following should be included in the consideration transferred in a

business combination?

Fees paid to accountants to effect the Both cost of maintaining an acquisition

A combination B department and fees paid to
accountants to effect the combination

Neither cost of maintaining an Cost of maintaining an acquisition

acquisition department nor fees paid department
C D
to accountants to effect the
combination
23. What is meant by full goodwill method?

The recognition of goodwill which A bargain purchase

A B
relates to the noncontrolling interest

The recognition of goodwill which The recognition of goodwill which

C relates to the noncontrolling interest D relates to the parent company interest
and the controlling interest

24. Which of the following would not contribute to the creation of negative goodwill?

A requirement in a standard to Making acquisitions at the top of a bull

A measure net assets acquired at a value B market for shares
other than fair value

A bargain purchase Errors in measuring the fair value of the

C D acquiree's net identifiable assets or the
cost of the business combination

25. In a business combination accounted for as an acquisition, the fair value of the net
identifiable assets acquired exceeded the acquisition cost. How should the excess
fair value be reported?

A Negative goodwill B Share premium

Gain from bargain purchase Reduction of the values assigned to

C recognized in profit or loss D certain assets and gain for any
unallocated portion

26. Goodwill acquired in a business combination shall be accounted for as which of the
following?

Recognize as an intangible asset and Recognize as an intangible asset and

A amortize over the useful life B test for impairment when trigger event
occurs

Recognize as an intangible asset and Write off against retained earnings

C test for impairment annually or more D
frequently if impairment is indicated
27. The contingent liability of the acquired entity shall be recognized at fair value.
Recognition of such contingent liability shall

Decrease the value attributed to Decrease the value attributed to

A goodwill, thus decreasing the risk of B goodwill, thus increasing the risk of
impairment of goodwill impairment of goodwill

Increase the value attributed to Increase the value attributed to

C goodwill, thus decreasing the risk of D goodwill, thus increasing the risk of
impairment of goodwill impairment of goodwill

28. Which of the following situations would require the use of the acquisition method in a
business combination?

The purchase of more than 50% of a All would require the acquisition
A B
business method

C The formation of a joint venture D The acquisition of a group of assets

29. Which of the following is not one of the steps in accounting for business
combination?

Prepare proforma financial statements Expense the costs and general

A prior to acquisition B expenses of the acquisition in the
period of acquisition

C Determine the acquisition date D Identify the acquirer

30. What date should be used as the acquisition date for a business combination?

The date when the acquirer signs the The date when the acquirer obtains
A B
contract to purchase the business control of the acquiree

The date when all contingencies The date when the acquirer purchased
C related to the business combination D more than 205 of the shares of the
are resolved acquiree
31. What is the requirement with respect to the allocation of the cost of a business
acquisition?

Cost to be allocated based on Cost to be allocated based on carrying

A B
management estimate amount

Cost to be allocated based on original Cost to be allocated based on fair

C D
cost value

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

Do not record the uncertain items until Record contra account to the
A complete information is available B investment account for the amount
involved

Record the uncertain items at a Record the uncertain items at the

C provisional amount measured at the D carrying amount of the acquiree
date of acquisition

33. When does the measurement period end for a business combination in which there
was incomplete information on the date of acquisition?

On the final date when all At the end of the reporting period in the
A B
contingencies are resolved year of acquisition

Thirty days from the date of acquisition When the acquirer receives the
information or one year from the
C D
acquisition date, whichever occurs
earlier

34. What is the period after the acquisition date during which the acquirer may adjust the
provisional amounts recognized for a business combination?

A Prospective period B Measurement period

C Retrospective period D Retroactive period

35. What is the proper treatment of measurement period adjustment?

Adjusted to other comprehensive Adjusted profit or loss

A B
income

Retroactively adjusted to retained Retroactively adjusted to goodwill or

C D
earnings gain on bargain purchase
Answer Key

1. c 2. b 3. c 4. c

5. d 6. a 7. c 8. a

9. a 10. a 11. c 12. a

13. a 14. b 15. b 16. d

17. b 18. d 19. b 20. c

21. b 22. c 23. c 24. b

25. c 26. c 27. d 28. a

29. a 30. b 31. d 32. c

33. d 34. b 35. d