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

Recognizing and measuring the identifiable assets acquired, the liabilities assumed and the noncontrolling interest in the acquiree at carrying amount

Determining the acquisition date

Recognizing goodwill or gain from bargain purchase.

Which statement is incorrect concerning an acquirer?

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

In a business combination effected by transferring cash or other assets, the acquirer is usually the entity that transfers the cash or other assets

In a business combination effected by issuing equity interests, the acquirer is usually the entity that issues the equity interests

The acquirer is usually the combing entity whose relative size is significantly greater than that of the other combining entity or entities

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

The acquisition date can never precede the closing date

The acquisition date is the date on which an acquirer obtains control over the acquiree

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.

Where several dates are key to a business combination, the date on which control passes is the acquisition date.

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

Acquisition date carrying amount

Acquisition date present value of cash flows

Acquisition date historical cost

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

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 acquire over the identifiable net assets acquired

The consideration transferred over the identifiable net assets acquired.

The total of the consideration transferred and the amount of any noncontrolling interest in the acquiree over the identifiable net assets acquired

The total of the consideration received and the fair value of the previously held interest in the acquiree over the identifiable net assets acquired

Which statement is not true in relation to business combination?

The acquirer shall recognize acquiree's contingent assets if certain conditions are met

The acquirer shall recognize the acquisition-date fair value of any contingent consideration as part of the consideration transferred in a business combination

The acquirer shall recognize the acquiree's contingent liabilities if certain conditions are met

All of the statements are not true.

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

When the contingency is resolved

When it becomes more likely than not that the entity will not be liable

At the end of the year of acquisition

When it is reasonably possible that the liability will not require payment

Acquisition costs incurred and related to a business combination should be

Expensed as incurred in the current period

Allocated on a prorata basis to the nonmonetary assets acquired

Capitalized as part of goodwill and tested annually for impairment

Capitalized as other asset and amortized over five years

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 achieved in stages

Business combination off entities under common control

Business combination by installment

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

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

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

The pre-existing interest shall not be remeasured

The pre-existing interest shall be measured at fair value with any resulting gain or loss recognized in retained earnings.

The noncontrolling interest should be recorded at what amount?

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

The fair value of the shares held by the acquirer

The proportionate share of the carrying amount of net identifiable assets of acquiree

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

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

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

Cost of maintaining an acquisition department

Fees paid to accountants to effect the combination

Both cost of maintaining an acquisition department and fees paid to accountants to effect the combination

What is meant by full goodwill method?

The recognition of goodwill which relates to the noncontrolling interest and the controlling interest

The recognition of goodwill which relates to the parent company interest

The recognition of goodwill which relates to the noncontrolling interest

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

Making acquisitions at the top of a bull market for shares

Errors in measuring the fair value of the acquiree's net identifiable assets or the cost of the business combination

A requirement in a standard to measure net assets acquired at a value other than fair value

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?

Gain from bargain purchase recognized in profit or loss

Reduction of the values assigned to certain assets and gain for any unallocated portion

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

Recognize as an intangible asset and test for impairment annually or more frequently if impairment is indicated

Recognize as an intangible asset and amortize over the useful life

Write off against retained earnings

Recognize as an intangible asset and test for impairment when trigger event occurs

The contingent liability of the acquired entity shall be recognized at fair value. Recognition of such contingent liability shall

Increase the value attributed to goodwill, thus increasing the risk of impairment of goodwill

Decrease the value attributed to goodwill, thus decreasing the risk of impairment of goodwill

Decrease the value attributed to goodwill, thus increasing the risk of impairment of goodwill

Increase the value attributed to goodwill, thus decreasing the risk of impairment of goodwill

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 business

The acquisition of a group of assets

The formation of a joint venture

All would require the acquisition method

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

Prepare proforma financial statements prior to acquisition

Expense the costs and general expenses of the acquisition in the period of acquisition

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

The date when the acquirer obtains control of the acquiree

The date when the acquirer signs the contract to purchase the business

The date when all contingencies related to the business combination are resolved

The date when the acquirer purchased more than 205 of the shares of the acquiree

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

Cost to be allocated based on fair value

Cost to be allocated based on carrying amount

Cost to be allocated based on original cost

Cost to be allocated based on management estimate

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

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

Do not record the uncertain items until complete information is available

Record contra account to the investment account for the amount involved

Record the uncertain items at the carrying amount of the acquiree

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

When the acquirer receives the information or one year from the acquisition date, whichever occurs earlier

On the final date when all contingencies are resolved

Thirty days from the date of acquisition

At the end of the reporting period in the year of acquisition

What is the proper treatment of measurement period adjustment?

Retroactively adjusted to goodwill or gain on bargain purchase

Adjusted to other comprehensive income

Retroactively adjusted to retained earnings

Business Combination - Theories

Authored by Gieanne Cruz

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University

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

Business Combination

Merger

Consolidation

Controlling Interest

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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.

Business

Transaction

Isolated event

Undertaking

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

By transferring cash, cash equivalents and other assets

By issuing equity interests

By contract alone, even without consideration

By acquiring interest in a joint venture

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

One or more businesses become subsidiaries of an acquirer

One entity transfers net assets to another entity

A group of former owners of one of the combining entities obtain control of the combined entity

An entity acquires assets that are not a business

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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.

Combination of entities or businesses under common control

True merger

Merger of equals

Consolidation

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

True merger

Legal merger

Roll up transaction

Spin off

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which statement best describes the term control?

The mutual sharing of risks and benifits

The power to participate in the financial and operating policy decisions of an entity

The holding of a significant proportion of the share capital in another entity

The power to govern the financial and operating policies of an entity so as to obtain benefits from the activities

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Business Combination - Theories

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

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.

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

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

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.

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

Which statement best describes the term control?

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

This is defined as holders of equity interest of investor-owned entities, or members and participants in mutual entities.

An entity shall account for all business combinations by applying

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