WorksheetsBusiness Combination - Theories
Total questions: 35
Worksheet time: 18mins
It is a transaction or other event in which an acquirer obtains control of one or more businesses.
Business Combination
Merger
Consolidation
Controlling Interest
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
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
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
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
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
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
This is defined as the entity that obtains control of an acquiree.
Acquirer
Investor
Shareholder
Owner
This is defined as holders of equity interest of investor-owned entities, or members and participants in mutual entities.
Shareholders
Investors
Owners
Participants
An entity shall account for all business combinations by applying
Acquisition method
Pooling method
Proportional consideration
Equity method
The acquisition method of accounting for a business combination requires all of the following, except
Identifying the acquirer
Determining the acquisition date
Recognizing and measuring the identifiable assets acquired, the liabilities assumed and the noncontrolling interest in the acquiree at carrying amount
Recognizing goodwill or gain from bargain purchase.
Which statement is incorrect concerning an 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
If a new entity is formed to issue entity interests to effect a business combination, the new entity formed is necessarily the acquirer
Which statement in relation to an acquisition date of a business combination is incorrect?
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.
The acquisition date can never precede the closing date
What is the initial measurement of the identifiable assets and liabilities assumed in a business combination?
Acquisition date fair value
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 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
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
Which statement is not true in relation to business combination?
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
The acquirer shall recognize acquiree's contingent assets 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 it becomes more likely than not that the entity will not be liable
When the contingency is resolved
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
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
Expensed as incurred in the current period
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 under common control
Business combination achieved in stages
Business combination by installment
Step by step acquisition
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 held by the acquirer
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 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?
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
Neither cost of maintaining an acquisition department nor fees paid to accountants to effect the combination
What is meant by full goodwill method?
The recognition of goodwill which relates to the parent company interest
The recognition of goodwill which relates to the noncontrolling interest and the controlling interest
The recognition of goodwill which relates to the noncontrolling interest
A bargain purchase
Which of the following would not contribute to the creation of negative goodwill?
Errors in measuring the fair value of the acquiree's net identifiable assets or the cost of the business combination
A bargain purchase
A requirement in a standard to measure net assets acquired at a value other than fair value
Making acquisitions at the top of a bull market for shares
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?
Negative goodwill
Share premium
Reduction of the values assigned to certain assets and gain for any unallocated portion
Gain from bargain purchase recognized in profit or loss
Goodwill acquired in a business combination shall be accounted for as which of the following?
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
Recognize as an intangible asset and test for impairment annually or more frequently if impairment is indicated
The contingent liability of the acquired entity shall be recognized at fair value. Recognition of such contingent liability shall
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
Increase the value attributed to goodwill, thus increasing the risk of impairment of goodwill
Which of the following situations would require the use of the acquisition method in a business combination?
The acquisition of a group of assets
The formation of a joint venture
The purchase of more than 50% of a business
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
Determine the acquisition date
Identify the acquirer
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 signs the contract to purchase the business
The date when the acquirer obtains control of the acquiree
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 carrying amount
Cost to be allocated based on fair value
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?
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
Record the uncertain items at a provisional amount measured at the date of acquisition
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 period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination?
Retroactive period
Prospective period
Retrospective period
Measurement period
What is the proper treatment of measurement period adjustment?
Adjusted profit or loss
Adjusted to other comprehensive income
Retroactively adjusted to goodwill or gain on bargain purchase
Retroactively adjusted to retained earnings
