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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

QUIZ 1 - Accounting for


Business Combinations (1st
Sem SY2223)
Business Combination

READ ME FIRST:

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possible, prepare a backup for internet connection (especially for students who are
dependent on WIFI plugged via electricity).
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5. For the problem solving cases, please present your solutions in good form in a separate
worksheet. I will be requiring you to submit after the quiz. Non-compliance will result to
invalidation of your score for the problem solving part.
6. Make sure to choose/put your correct section. Failure to do so will also result to invalidation
of your score.
7. For questions requiring you to key in your answers, do not round off during computation.
Observe and use the following format: P1,234,567 (capital P as the peso sign, comma sign
to separate values, no space, and no decimal points) and P0 (capital P and zero, no space in
between). In case of percentage/ratio like 30%, use P0.30 as the format. For negative
amount, enter the absolute amount. Failure to follow the said format will automatically
receive no point for the said answer even though you got the correct answer.
8. Be honest. Cheating in any form before or during the quiz will result in a zero score.
9. For any technical difficulties encountered while taking the exam, send me an e-mail with the
screenshots with the subject "Course Code Quiz #x - Technical Issues" as soon as
practicable. To reiterate, all official communications must be coursed through PUP webmail.
God bless and good luck :-)

Hi, Jhon Lloyd. When you submit this form, the owner will see your name and email address.

* Required
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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

NAME (Surname, Given Name, Middle Name) *

Enter your answer

SECTION *

BSA 3-4

BSA 3-5

BSA 3-6

BSA 3-7

BSA 3-8

BSA 3-11

BSMA 3-6

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

The exchange ratio in a business combination is the:

* (1 Point)

Ratio of the market value per share of the issuing company’s share capital to the market value
per share of the acquiree’s share capital

Ratio of the number of shares of the issuing company’s share capital to be exchanged for
each share of the acquiree’s share capital on the date of combination

Ratio of the total market value of the share capital issued to the total market value of share
capital received

Ratio of the number of shares of the acquiree’s share capital to be exchanged for each share
of the acquirer’s share capital

Which of the following is not included in the cost of an acquired company?

* (1 Point)

Contingent consideration determinable at the consummation date of the combination

Finder’s fee for arranging the combination

Cost of registering and issuing equity securities

None of the above

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

Which of the following is correct regarding reverse acquisition?

* (1 Point)

The entity whose equity interest are acquired (the legal acquiree) must be the acquirer for ac‐
counting purposes for the transaction to be considered a reverse acquisition.

In a reverse acquisition, the legal acquirer usually issues no consideration for the acquiree.

The accounting acquirer must meet the definition of a business for the transaction to be ac‐
counted as a reverse acquisition.

All of the above.

Acquirer Company acquired 100% of Acquiree Company through an issue of


5,000,000 shares, P10 par value, to the stockholders of Acquiree Company. The
following information relates to both companies at the date of acquisition (see
image below).

How much is the consideration transferred? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

Acquirer Company issued 5 shares in exchange for each ordinary share of


Acquiree Company (all outstanding shares) on January 2, 2022. The fair value of
Acquirer’s shares on that date was P60 while the fair value of Acquiree’s shares
was P200. The statement of financial position of both companies before the
combination were (see image below).

On the same date, the fair value of Acquirer’s identifiable assets and liabilities
assumed was P5,800 and P2,100 respectively while the fair value of Acquiree’s
net assets was the same as the carrying value.

How much is the amount of consideration? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

A business combination occurs when a company acquires an equity interest in


another entity and has:

* (1 Point)

At least 20% ownership in the entity

More than 50% ownership in the entity

100% ownership in the entity

Control over the entity, irrespective of the percentage owned

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

Acquirer Company started negotiating for the acquisition of Acquiree Company.


The offer was for shareholders of Acquiree to receive one Acquirer share with a
market value of P125 for every four shares held in exchange for all assets of
Acquiree (except shares in listed companies). In addition to the shares, Acquirer
will transfer its shares in listed companies which has a fair market value of
P750,000. Acquirer will also pay Acquiree sufficient cash to enable Acquiree to
pay all its creditors then Acquiree will liquidate. The shareholders of Acquiree
accepted the offer. The Balance Sheet on December 31, 2021 is given below
(see image below).

The net assets of Acquiree are reflected at their fair values except for the
following:

Inventory, P1,300,000 fair market value

Land and building, P4,000,000 fair market value

Shares in listed companies, P900,000 fair market value

How much is the goodwill/gain on bargain purchase? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

10

The stockholders’ equity of Acquirer Company and Acquiree Company on July


1, 2022 were as follows (see image below).

On July 2, 2022, Acquirer issued 150,000 of its shares with a market value of
P120 per share for the assets and liabilities of Acquiree, and Acquiree was
dissolved. On the same day, Acquirer paid P50,000 for indirect cost and
P100,000 for SEC registration of equity securities.

How much is the total stockholders’ equity of Acquirer after the combination? *
(2 Points)

Enter your answer

11

In recording acquisition costs, which of the following procedures is correct?

* (1 Point)

Costs of registering shares are expensed.

Indirect costs are charged against the fair value of the shares issued.

Direct costs are added as part of the consideration transferred.

Amounts paid to lawyer and accountant are expensed.

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

12

Control over an acquiree can be attained through which of the following?

* (1 Point)

Acquisition of the acquiree assets

Acquisition of the acquiree stock

Either acquisition of the acquiree assets or stock

Neither acquisition of the acquiree assets or stock

13

Statement I. PFRS for SMEs should be applied to companies that are in the
process of filing financial statements for the purpose of issuing any class of
instruments in the public market.

Statement II. Contingent consideration is included as part of the consideration


transferred even if the outcome is not probable provided that it is a present
obligation and the amount can be measured reliably.

* (1 Point)

Both statements are true.

Both statements are false.

Statement I is true; Statement II is false.

Statement I is false; Statement II is true.

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

14

Acquirer Company acquired 30% interest from Acquiree Company by paying


cash of P150,000 and issuing its own shares with a fair value of P200,000 on
January 2, 2022. As a result, Acquirer acquired a significant influence over
Acquiree. On July 1, 2022, Acquirer purchased another 50% of Acquiree’s
ordinary share for cash payment of P1,100,000. On this date, the net asset of
Acquiree had a fair value of P1,300,000. For the first semester of 2022, Acquiree
reported a profit of P900,000 and declared dividends of P100,000. Acquirer
opted to measure NCI using the proportionate share. Related to the latest
acquisition, Acquirer paid the following: legal fees - P20,000; audit fees –
P10,000; and brokerage fees – P10,000.

How much is the goodwill/gain on bargain purchase? * (2 Points)

Enter your answer

15

An acquirer should at the acquisition date recognize goodwill acquired in


business combination as an asset. Goodwill should be accounted for as follows:

* (1 Point)

Recognize as an intangible asset and amortize over its useful life

Write off against retained earnings

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

Recognize as an intangible asset and annual impairment test (or more frequently if impair‐
ment is indicated)

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

16

Acquirer Company purchased the net asset of Acquiree Company by paying


cash of P800,000 and issuing shares with a fair market value of P3,110,000 on
January 2, 2022. The statement of financial position of both companies is as
follows (see image below).

Acquirer determined that the fair values of the assets acquired and liabilities
assumed approximated their book values. Acquirer also incurred and paid legal
and brokerage fees of P25,000 for business combination, share issue cost of
P15,000 and indirect acquisition costs of P10,000.

How much is the goodwill/gain on bargain purchase? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

17

Acquirer Company issued 100,000 shares of its P5 par value ordinary share
capital with market value P510,000 for all the outstanding shares of Acquiree
Company on July 1, 2021. Acquirer also incurred legal fees of P35,000 and cost
of issuing and registering new shares of P15,000. On this date, the fair value of
the net asset of Acquiree was P450,000. The journal entry to record the business
combination should include:

* (1 Point)

A debit of P525,000 to the Investment in Subsidiary

A debit of P15,000 to the Share Premium

A debit of P5,000 to Retained Earnings

A credit of P510,000 to Share Capital

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

18

Acquirer Company issued 80,000 new shares of its P5 par value ordinary shares
valued at P12 per share in exchange for 100,000 outstanding shares (P2 par
value) of Acquiree Company on March 31, 2022. The fair value and book value
of Acquiree’s identifiable assets and liabilities were the same except Inventory
which was overstated by P50,000 and Equipment which was understated by
P100,000. The financial statements of both companies were (see image below).

Acquirer also agreed to pay P500,000 one year after the acquisition date if the
net income of Acquiree will exceed P10,000,000. The fair value of the contingent
consideration is P300,000. Acquirer incurred the following costs: Finder’s Fee -
20,000; Professional Fee - 60,000; Other Indirect Cost - 10,000 and Printing and
Registration of Shares - 5,000.

How much is the goodwill/gain on bargain purchase if NCI is measured using


fair value? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

19

Acquirer Company issued 5 shares in exchange for each ordinary share of


Acquiree Company (all outstanding shares) on January 2, 2022. The fair value of
Acquirer’s shares on that date was P60 while the fair value of Acquiree’s shares
was P200. The statement of financial position of both companies before the
combination were (see image below).

On the same date, the fair value of Acquirer’s identifiable assets and liabilities
assumed was P5,800 and P2,100 respectively while the fair value of Acquiree’s
net assets was the same as the carrying value.

How much is the goodwill/gain on bargain purchase? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

20

Acquirer Company purchased the net asset of Acquiree Company on June 1,


2021 for a consideration of P8,000,000. On this date, the carrying amount of
Acquiree’s net asset was P5,000,000 with provisional fair value of P7,550,000. An
additional valuation was received on October 1, 2021 which increased the
provisional amount by P200,000. On December 31, 2021, an update of the
provisional fair value of P6,500,000 was attributable to the net asset. Another
update on the valuation was received on April 1, 2022 which decreased the
provisional amount by P150,000. The provisional fair value was finalized on July
31, 2022 with an amount of P6,990,000.

How much is the goodwill to be presented in the books of the acquirer on


December 31, 2021? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

21

Acquirer Company acquired the net assets of Acquiree Company by issuing


150,000 shares of its P10 par value ordinary share capital on July 1, 2022. The
market value of the shares was P12. Acquirer also paid direct costs of P100,000
which includes P15,000 cost of issuing and registering new shares. The financial
statements of Acquirer and Acquiree were (see image below).

The fair value and book value of Acquiree Company’s identifiable assets and
liabilities were the same except Equipment which was undervalued by P250,000
and Inventory which was overvalued by P100,000. Assuming that Acquirer
Company is an SME.

How much is the total assets after business combination?

* (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

22

Acquirer Company started negotiating for the acquisition of Acquiree Company.


The offer was for shareholders of Acquiree to receive one Acquirer share with a
market value of P125 for every four shares held in exchange for all assets of
Acquiree (except shares in listed companies). In addition to the shares, Acquirer
will transfer its shares in listed companies which has a fair market value of
P750,000. Acquirer will also pay Acquiree sufficient cash to enable Acquiree to
pay all its creditors then Acquiree will liquidate. The shareholders of Acquiree
accepted the offer. The Balance Sheet on December 31, 2021 is given below
(see image below).

The net assets of Acquiree are reflected at their fair values except for the
following:

Inventory, P1,300,000 fair market value

Land and building, P4,000,000 fair market value

Shares in listed companies, P900,000 fair market value

How much is the total assets of Acquirer after the merger? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

23

Statement I. The acquisition date should be the same as the date when the
acquirer legally transfers the consideration, acquires the assets and assumes the
liability.

Statement II. According to PFRS for SMEs, the acquirer measures non-
controlling interest (NCI) in the acquiree using either fair value or proportionate
share based on the accounting policy choice.

* (1 Point)

Both statements are true.

Both statements are false.

Statement I is true; Statement II is false.

Statement I is false; Statement II is true.

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

24

Acquirer Company issued 80,000 new shares of its P5 par value ordinary shares
valued at P12 per share in exchange for 100,000 outstanding shares (P2 par
value) of Acquiree Company on March 31, 2022. The fair value and book value
of Acquiree’s identifiable assets and liabilities were the same except Inventory
which was overstated by P50,000 and Equipment which was understated by
P100,000. The financial statements of both companies were (see image below).

Acquirer also agreed to pay P500,000 one year after the acquisition date if the
net income of Acquiree will exceed P10,000,000. The fair value of the contingent
consideration is P300,000. Acquirer incurred the following costs: Finder’s Fee -
20,000; Professional Fee - 60,000; Other Indirect Cost - 10,000 and Printing and
Registration of Shares - 5,000.

How much is the amount of consideration transferred? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

25

An entity shall determine whether a transaction or other event is a business


combination by applying the definition in PFRS 3, which requires that:

* (1 Point)

All of the combining entities or businesses are ultimately controlled by the same party or
parties both before and after the business combination.

The assets acquired and the liabilities assumed constitute a business.

All of the combining entities transfer their net assets, or the owners of those entities transfer
their equity interests, to a newly formed entity.

All of the above.

26

Acquirer Company purchased the net asset of Acquiree Company on June 1,


2021 for a consideration of P8,000,000. On this date, the carrying amount of
Acquiree’s net asset was P5,000,000 with provisional fair value of P7,550,000. An
additional valuation was received on October 1, 2021 which increased the
provisional amount by P200,000. On December 31, 2021, an update of the
provisional fair value of P6,500,000 was attributable to the net asset. Another
update on the valuation was received on April 1, 2022 which decreased the
provisional amount by P150,000. The provisional fair value was finalized on July
31, 2022 with an amount of P6,990,000.

How much is the goodwill to be presented in the books of the acquirer on


December 31, 2022? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

27

Statement I. Statutory merger occurs when two or more companies combined


into a newly formed entity.

Statement II. Under PFRS for SMEs, goodwill arising from business combination
is amortized over 10 years or its useful life whichever is longer.

* (1 Point)

Both statements are true.

Both statements are false.

Statement I is true; Statement II is false.

Statement I is false; Statement II is true.

28

Acquirer Company acquired a 10% interest in Acquiree Company for cash


consideration of P1,500,000 on January 1, 2022. Acquirer classified the interest
as equity investment at fair value through profit or loss. On June 1, 2022,
Acquirer acquired another 50% of the equity interest for cash consideration of
P6,000,000. The identifiable net assets of Acquiree had a fair value of
P8,000,000. Acquirer elected to measure the NCI at their share of the net
identifiable net assets.

How much is the goodwill/gain on bargain purchase? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

29

Which of the following is incorrect regarding measurement period?

* (1 Point)

If the initial accounting for a business combination is incomplete by the end of the reporting
period in which the combination occurs, the acquirer shall report in its financial statements
provisional amounts for the items for which the accounting is incomplete.

During the measurement period, the acquirer shall prospectively adjust the provisional
amounts recognized at the acquisition date to reflect new information obtained about facts
and circumstances that existed as of the acquisition date and, if known, would have affected
the measurement of the amounts recognized as of that date.

During the measurement period, the acquirer shall also recognize additional assets or liabilit‐
ies if new information is obtained about facts and circumstances that existed as of the acquisi‐
tion date and, if known, would have resulted in the recognition of those assets and liabilities
as of that date.

The measurement period ends as soon as the acquirer receives the information it was seeking
about facts and circumstances that existed as of the acquisition date or learns that more in‐
formation is not obtainable.

30

Which of the following types of business combinations typically occurs when


management is attempting to diversify its investment?

* (1 Point)

Horizontal combination

Vertical combination

Conglomerate combination

Diversification can be the goal of any type of business combination

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

31

An example of a business combination under PFRS 3 is:

* (1 Point)

Legal merger of net assets of acquired businesses into acquirer’s book

Net assets of combining entities transferred to a newly formed entity

Businesses become subsidiaries of acquirer

All of the above

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

32

Acquirer Company purchased the net asset of Acquiree Company by paying


cash of P800,000 and issuing shares with a fair market value of P3,110,000 on
January 2, 2022. The statement of financial position of both companies is as
follows (see image below).

Acquirer determined that the fair values of the assets acquired and liabilities
assumed approximated their book values. Acquirer also incurred and paid legal
and brokerage fees of P25,000 for business combination, share issue cost of
P15,000 and indirect acquisition costs of P10,000.

How much is total shareholder’s equity after business combination? *


(2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

33

Acquirer Company acquired all the outstanding shares of Acquiree Company by


issuing 50,000 shares with a par value of P100 on July 1, 2022. Acquirer’s
ordinary shares were selling at P102 per share at the date of acquisition. On the
same date, the net asset of Acquiree had a carrying value and fair value of
P3,800,000 and P4,500,000 respectively. Out of pocket expenses of the business
combination were as follows (see image below).

How much is the amount charged to expense? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

34

Acquirer Company acquired 80% interest from Acquiree Company on January 1,


2022, when the stockholders’ equity of Acquiree consisted of:

Ordinary shares, P100 par - 500,000

Paid in capital in excess of par - 300,000

Retained earnings - 500,000

Acquirer paid P1,500,000 for the interest acquired plus P100,000 for costs
directly attributable to the acquisition and P20,000 for indirect costs. The
amount paid by Acquirer included a control premium of P50,000. Acquiree’s
carrying value of net assets is equal to their fair market values except of the
Inventory which was undervalued by 100,000 and Equipment which was
underdepreciated by P75,000.

How much is the goodwill/gain on bargain purchase? * (2 Points)

Enter your answer

35

In a business combination in which there is an exchange of cash for all the


outstanding shares of the acquiree, how does the ownership structure of the
acquiree change?

* (1 Point)

There is no change in the acquiree ownership structure.

The acquirer stockholders become the acquiree stockholders.

The acquirer and acquiree stockholders share ownership of the acquiree.

It is impossible to determine if there is a change in the acquiree ownership structures.

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

36

Acquirer Company paid P15,000 to its accountants and lawyers in acquiring


Acquiree Company. Acquirer will treat the P15,000 as:

* (1 Point)

An expense for the current year

A prior period adjustment to retained earnings

Additional cost of the investment

A reduction in share premium

37

Statement I. In a stock acquisition, gain on bargain purchase is recognized in


profit or loss of the acquirer (after reassessment) if the consideration
transferred, previously held interest, and non-controlling interest are less than
the fair value of net assets acquired.

Statement II. Costs incurred in public offering of shares are charged to share
premium or retained earnings.

* (1 Point)

Both statements are true.

Both statements are false.

Statement I is true; Statement II is false.

Statement I is false; Statement II is true.

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

38

Acquirer Company acquired the net assets of Acquiree Company by issuing


150,000 shares of its P10 par value ordinary share capital on July 1, 2022. The
market value of the shares was P12. Acquirer also paid direct costs of P100,000
which includes P15,000 cost of issuing and registering new shares. The financial
statements of Acquirer and Acquiree were (see image below).

The fair value and book value of Acquiree Company’s identifiable assets and
liabilities were the same except Equipment which was undervalued by P250,000
and Inventory which was overvalued by P100,000. Assuming that Acquirer
Company is an SME.

How much is the goodwill/gain on bargain purchase? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

39

Acquirer Company purchased the net asset of Acquiree Company by paying


cash of P800,000 and issuing shares with a fair market value of P3,110,000 on
January 2, 2022. The statement of financial position of both companies is as
follows (see image below).

Acquirer determined that the fair values of the assets acquired and liabilities
assumed approximated their book values. Acquirer also incurred and paid legal
and brokerage fees of P25,000 for business combination, share issue cost of
P15,000 and indirect acquisition costs of P10,000.

How much is the total assets after business combination? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

40

Statement I. When two or more separate businesses join into a single


accounting entity, PFRS 3 should be applied.

Statement II. The acquirer shall measure the identifiable assets acquired and the
liabilities assumed at their reporting date fair value.

* (1 Point)

Both statements are true.

Both statements are false.

Statement I is true; Statement II is false.

Statement I is false; Statement II is true.

41

In a statutory merger, which of the following will occur?

* (1 Point)

One corporation takes over the operations of another business entity and the acquired entity
is dissolved.

None of the business entities will be dissolved.

The acquired assets will be recorded at book values by the acquiring entity.

None of the above.

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

42

Acquirer Company issued 80,000 new shares of its P5 par value ordinary shares
valued at P12 per share in exchange for 100,000 outstanding shares (P2 par
value) of Acquiree Company on March 31, 2022. The fair value and book value
of Acquiree’s identifiable assets and liabilities were the same except Inventory
which was overstated by P50,000 and Equipment which was understated by
P100,000. The financial statements of both companies were (see image below).

Acquirer also agreed to pay P500,000 one year after the acquisition date if the
net income of Acquiree will exceed P10,000,000. The fair value of the contingent
consideration is P300,000. Acquirer incurred the following costs: Finder’s Fee -
20,000; Professional Fee - 60,000; Other Indirect Cost - 10,000 and Printing and
Registration of Shares - 5,000.

How much is the goodwill/gain on bargain purchase if NCI is measured using


proportionate share? * (2 Points)

Enter your answer

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11/25/22, 1:03 PM QUIZ 1 - Accounting for Business Combinations (1st Sem SY2223)

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