PART 1: THEORIES

1. In the separate statement of financial position of the home office, the investment in branch
account shall be presented as
A. Liability
B. Equity
C. Asset
D. Income
2. In the separate statement of financial position of the branch, the home office account shall be
presented as
A. A Liability
B. Equity
C. Asset
D. Income
3. In the combined statement of financial position prepared by the company, the inventory of
the branch shall be measured and presented at
A. Lower of cost or net realizable value
B. Cost
C. Billed price
D. Fair value
4. The main difference between the net income reported in the separate income statement of the
branch and the net income reported by the home office for the branch's operation is the
A. Overstatement of beginning and ending inventory reported by the branch
B. Overstatement of total goods available for sale reported by the branch
C. Overstatement of cost of goods sold reported by the branch
D. Overstatement of shipment from home office reported by the branch
5. If the home office receives debit memo from the branch, the home office shall record it in its
separate statement of financial position by
A. Increasing the investment in branch account
B. Decreasing the investment in branch account
C. Debiting the investment in branch account
D. Disclosure
6. If the branch receives credit memo from the home office, the branch shall record it in its
separate statement of financial position by
A. Increasing the home office account
B. Crediting the home office account
C. Debiting the borne office account
D. Disclosure
7. Which of the following transactions will increase the home office account in the branch's
separate statement of financial position?
A. Net loss of the branch
 B. Collection by the home office of branch's receivable
C. Debit memo receivcx1 from the home office
D. Payment by the branch of home office's liability
8. Which of the following transactions will decrease the investment in branch's account in the
home office's separate statement of financial position?
A. Net income of the branch
B. Payment of branch's liability by the home office
C. Credit memo received from the branch
D. Return by branch to home office of merchandise shipped
9. The “Branch – Current” and “Home Office – Current” accounts are best described as:
A. Contra accounts
B. Adjunct accounts
C. Reciprocal accounts
D. Investment accounts
10. The “Home Office” ledger account in the accounting records of a branch is best compared to:
A. An equity account
B. A revenue account
C. A liability account
D. A deferred revenue account
11. The home office will credit the Branch account when:
A. It takes up branch profits
B. It records the receipt of cash from the branch
C. Shipments from merchandise are made to the branch
D. It allocates expenses to the branch that were paid by the home office
12. In preparing the combined financial statements of the home office and its various branches:
A. Both reciprocal and nonreciprocal accounts are combined.
B. Both reciprocal and nonreciprocal accounts are eliminated.
C. Reciprocal are eliminated and nonreciprocal accounts are combined.
D. Reciprocal are combined and nonreciprocal accounts are eliminated.

PART 1: THEORIES
1. It is a nature of a business combination when one corporation attempts to have control
over another corporation without the agreement of the acquired company’s board of
directors.
A. Hostile Combination
B. Friendly Combination
C. Horizontal Integration Combination
D. Vertical Integration Combination
2. It is a nature of a business combination when one corporation takeover another
corporation with both the board of directors approving the business combination.
A. Hostile Combination
B. Friendly Combination
C. Horizontal Integration Combination
D. Vertical Integration Combination

3. The goal of this business combination is to acquire another company, preferably its
competitor, within the same industry.
A. Hostile Combination
B. Friendly Combination
C. Horizontal Integration Combination
D. Vertical Integration Combination

4. The goal of this business combination is to acquire another company, preferably its
supplier, within the same industry.
A. Hostile Combination
B. Friendly Combination
C. Horizontal Integration Combination
D. Vertical Integration Combination

5. What is the current accounting standard for Business Combinations?

A. PFRS 3, Business Combinations
B. PAS 22, Accounting for Business Combinations
C. PAS 3, Consolidated Financial Statements
D. PFRS 9, Financial Instruments

6. In this type of business combination, the books of the acquirer and acquiree would still
exist after the business combination and the acquirer would make a consolidated financial
statements periodically.
A. Asset Acquisition
B. Net Asset Acquisition
C. Stock Acquisition
D. Net Stock Acquisition

7. Acquisition date in a business combination refers to the date:

A. When the acquirer obtains the control of another company.
B. When the acquiree receives the consideration transferred.
 C. When the acquirer and acquiree identified the Goodwill / Bargain purchase gain.
D. When the contract of the business combination was signed by both the acquirer and
acquiree.

8. According to the accounting standard for business combination, at what values of the
identifiable net assets of the acquiree should the acquirer records on its books?
A. Fair value
B. Book Value
C. Carrying Value
D. Values Education

9. Acquisition-related cost that are attributable to the cost of issuing shares should be
deducted to the:
A. Retained Earnings
B. Share Premium
C. Ordinary shares
D. Goodwill

10. Which among the following steps are not under the acquisition method?
A. Identify the acquiree
B. Determine and measure the fair value of the identifiable net assets of the acquiree
C. Calculate the fair value of the purchase consideration
D. Recognize and measure the goodwill or a gain from a bargain purchase

11. Statement 1: Control over the acquiree assets is indirectly achieved in an asset for asset
exchange but directly achieved in an asset for stock exchange.
Statement 2: The acquiree entity is liquidated in a statutory consolidation.
A. Only statement 1 is true.
B. Only statement 2 is true.
C. Both statements are true.
D. Neither of the statements is true.

12. Statement 1: In a statutory consolidation form of a business combination, the Retained

Earnings account of the newly formed corporation has a balance of equal to the acquiree’s
balance plus any bargain purchase gain and less any direct/indirect acquisition-related
cost immediately after the acquisition.
Statement 2: There is an increase in the total capitalization of an acquirer when the
acquirer issues stocks for the acquiree’s assets.
 A. Only statement 1 is true.
B. Only statement 2 is true.
C. Both statements are true.
D. Neither of the statements is true.

13. Statement 1: In an acquisition of assets for assets, the ownership structure of the acquiree
does not change.
Statement 2: In an acquisition of assets for assets, the ownership structure of the acquirer
changes.
A. Only statement 1 is true.
B. Only statement 2 is true.
C. Both statements are true.
D. Neither of the statements is true.

14. Statement 1: For a business combination to qualify as a statutory consolidation, a new

corporation must be formed.
Statement 2: In a business combination accomplished as a stock acquisition normally two
companies exist after the combination.
A. Only statement 1 is true.
B. Only statement 2 is true.
C. Both statements are true.
D. Neither of the statements is true.

PART 1: THEORIES
1. When the implied value exceeds the aggregate fair values of identifiable net assets, the
residual difference is accounted for as
A. Excess of implied over fair value.
B. A deferred credit.
C. Difference between implied and fair value.
D. Goodwill.

2. Working paper elimination entries are entered in

A. both the parent company and subsidiary accounting records
B. the subsidiary’s accounting records only
C. the parent company’s accounting records only
D. neither the parent company’s nor the subsidiary’s accounting record

3. Which of the following is the best theoretical justification for consolidated financial
statements?
A. in form, the companies are one entity, in substance they are separate
B. in form and substance, the companies are one entity
 C. in form and substance, the companies are separate
D. in form, the companies are separate, in substance they are one entity

4. Which of the following is not included in the price paid in an acquisition type of business
combination?
A. cash paid
B. fair value of shares issued
C. investment banker’s finders fee for the combination
D. contingent consideration

5. In a business combination accounted for as a purchase, the appraisal values of the

identifiable assets acquired exceeds the acquisition price. The excess should be reported
as
A. gain on acquisition
B. reduction of the values assigned to current assets and deferred credit for any
unallocated portion
C. reduction of the values assigned to the non-current assets and deferred credit for any
unallocated portion
D. prorate reduction of the values assigned to current and non-current assets

6. What is push down accounting?

A. A requirement that a subsidiary must use the same accounting principles as a parent
company.
B. Inventory transfers made from a parent company to a subsidiary.
C. A subsidiary’s recording of the fair value allocation as well as subsequent
amortization.
D. The adjustments required for consolidation when a parent has applied the equity
method of accounting for internal purposes.

7. The investment in subsidiary should be recorded on the parent’s books at the

A. Underlying book values of the subsidiary’s net assets.
B. Fair value of the subsidiary’s net identifiable assets.
C. Fair value of the consideration given.
D. Fair value of the consideration given plus an estimated value for goodwill.

8. PFRS defines control as

A. The direct or indirect ability to determine the direction of management and policies
through ownership, contract, or otherwise.
B. The power to govern the financing and operating policies of the entity as to obtain
benefits from its activities.
C. The power to direct the activities that impact economic performance, the obligation to
absorb expected losses, and the right to receive expected residual returns.
 D. Having a majority of the ownership interests entitled to elect management, controlling
financial interest (usually ownership of a majority voting interest) in the other
entities.

9. In a business combination, an acquirer’s interest in the fair value of the net assets
acquired exceeds the consideration transferred in the combination, the acquirer should
A. Recognize the excess immediately to profit and loss
B. Recognize the excess immediately in other comprehensive income.
C. Reassess the recognition and measurement of the net assets acquired and the
consideration transferred, then recognize any excess immediately in profit and loss.
D. Reassess the recognition and measurement of the net assets acquired and the
consideration transferred, then recognize any excess immediately in other
comprehensive income.

10. Statement 1: The non-controlling interest shareholders’ claim of the subsidiary’s net
assets is based on the book value of the subsidiary’s net assets.
Statement 2: Foreign subsidiaries do not need to be consolidated if they are reported as a
separate operating group under segment reporting.
A. Only statement 1 is correct.
B. Only statement 2 is correct
C. Both statements are correct
D. Neither of the statement is correct

11. Statement 1: Only the parent’s portion of the difference between book value and fair
value of the subsidiary’s asset is assigned to those assets.
Statement 2: Consolidated retained earnings do not include the controlling interest’s
claim on the subsidiary’s retained earnings.
A. Only statement 1 is correct.
B. Only statement 2 is correct
C. Both statements are correct
D. Neither of the statement is correct

12. Statement 1: Goodwill represents the differences between the book value of the
subsidiary’s net assets and amount paid by the parent to buy ownership.
Statement 2: The non-controlling shareholder’s claim should be adjusted for changes in
the fair value of the subsidiary assets but should not include goodwill.
A. Only statement 1 is correct.
B. Only statement 2 is correct
C. Both statements are correct
D. Neither of the statement is correct

13. Statement 1: Total assets reported by the parent generally will be less than total assets
reported on the consolidated balance sheets.
 Statement 2: Consolidation is expected any time the investor holds significant influence
over the investee.
A. Only statement 1 is correct.
B. Only statement 2 is correct
C. Both statements are correct
D. Neither of the statement is correct

14. The non-controlling interest can be measured using:

A. Given fair value
B. Implied fair value
C. Proportionate share of the fair value of the identifiable net assets acquired
D. All of the other choices