Accounting for Business Combination Prelim Exam

_____ is the excess of the purchase consideration over the net value of assets

• cash

• goodwill

• purchase consideration

• capital reserve

The system of acquiring a business as a going concern by another business is

• business consideration

• redemption service

• goodwill

• purchase of business

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.

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

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

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

• Purchase of all assets and liabilities of another company.

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

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

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

• its fair value can be measured reliably.

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

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

The criterion used when determining the acquisition date for a business combination is the date:

• on which the consideration was paid by the acquirer

• control was achieved by the acquirer.

• on which the consideration was received by the acquirer.

• on which specific assets are delivered to the acquirer.

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

• consideration given.

• consideration received.

• costs directly attributable to the combination.

• consideration given plus directly attributable costs.

Goodwill is measured as the difference between the:

• present value of the acquisition consideration, and the present value of the net assets acquired.

• cost of the assets given up, and the cost of the net assets acquired.

• consideration given, and the fair value of the net assets and contingent liabilities acquired.

• cost of the net assets acquired, and the net present value of the consideration given up.

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

• By transferring cash, cash equivalents and other assets

• By contract alone, even without considerations

• By issuing equity interests

• By acquiring interest in a joint venture

Which statement best describes the term control?

• The mutual sharing of risks and benefits

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

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

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