19A2 - Advanced Financial Accounting - Business Combination

In a business combination, which of the following will occur?

• All identifiable assets and liabilities are recorded at fair value at the date of acquisition.

• All identifiable assets and liabilities are recorded at book value at the date of acquisition.

• Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets acquired.

• None of the above is correct.

When considering an acquisition, which of the following is not a method by which one company may gain control of another company?

• Purchase of the majority of outstanding voting stock of the acquired company.

• Purchase of all assets and liabilities of another company.

• Purchase the assets, but not necessarily the liabilities, of another company previously in bankruptcy.

• All of the above methods result in a company gaining control over another company.

When accounting for a business combination a contingent liability is recognised if:

• it is a present obligation that has failed to meet the recognition criteria.

• it is a possible obligation and it is probable that it will occur.

• its fair value can be measured reliably.

• it is probable that an outflow of resources may occur in order to settle the obligation.

Goodwill arising from a business combination is never ..........

The cost of acquisition in a business combination is measured as the fair value of the .......