Question 1

AASB 3/IFRS 3 is relevant when accounting for a business combination that:

Accepted Answer

A)  involves mutual entities. 
B)  results in the formation of a joint venture. 
C)  involves entities or businesses that are not investor owned. 
D)  results in an entity acquiring the net assets of another entity. 
A)  involves mutual entities. 
B)  results in the formation of a joint venture. 
C)  involves entities or businesses that are not investor owned. 
D)  results in an entity acquiring the net assets of another entity. D

Question 2

The information contained within Appendix B of AASB 3/IFRS 3 in relation to disclosure:

Accepted Answer

A)  is not mandatory, but contains optional additional disclosures. 
B)  is an integral part of AASB 3/IFRS 3. 
C)  contains prescribed presentation formats for disclosure of business combinations. 
D)  is complementary to the main disclosure requirements within the body of AASB 3/IFRS 3. 
A)  is not mandatory, but contains optional additional disclosures. 
B)  is an integral part of AASB 3/IFRS 3. 
C)  contains prescribed presentation formats for disclosure of business combinations. 
D)  is complementary to the main disclosure requirements within the body of AASB 3/IFRS 3. B

Question 3

Appendix B of AASB 3/IFRS 3 requires disclosure of which of the following?
I. A qualitative description of the factors that make up goodwill.
II. Details of contingent consideration.
III. The date of exchange.
IV. Carrying amounts of assets and liabilities in business combinations where shares are acquired.

Accepted Answer

A)  I, II and IV only. 
B)  I, III and IV only. 
C)  I, II and III only. 
D)  I, II, III and IV. 
A)  I, II and IV only. 
B)  I, III and IV only. 
C)  I, II and III only. 
D)  I, II, III and IV. A

Question 4

Under AASB 3/IFRS 3, the method of accounting for a business combination is the:

Accepted Answer

A)  purchase method. 
B)  acquisition method. 
C)  joint venture method. 
D)  market value method. 
A)  purchase method. 
B)  acquisition method. 
C)  joint venture method. 
D)  market value method.

Question 5

For a tangible asset to be recognised by an acquirer under a business combination it must be probable that future economic benefits will flow to the acquirer and:

Accepted Answer

A)  it must be a current item. 
B)  it may not be a non-monetary asset. 
C)  its fair value can be reliably measured. 
D)  it must be measured using the present value method. 
A)  it must be a current item. 
B)  it may not be a non-monetary asset. 
C)  its fair value can be reliably measured. 
D)  it must be measured using the present value method.

Question 6

Where the acquirer purchases assets and assumes liabilities of another entity it does not need to consider measurement of:

Accepted Answer

A)  goodwill. 
B)  consideration transferred. 
C)  fair values of identifiable net assets. 
D)  carrying amounts of identifiable net assets. 
A)  goodwill. 
B)  consideration transferred. 
C)  fair values of identifiable net assets. 
D)  carrying amounts of identifiable net assets.

Question 7

Kingscliff Limited estimated that the net present value of future cash flows from machinery acquired in a business combination is $70 000. The cost of replacing the machinery is estimated to be $76 000. The machinery has been independently appraised at a value of $68 000. A similar item of machinery cost the acquirer $78 000 last year. The value at which the machinery will be recognised when recording the business combination is:

Accepted Answer

A)  $76 000. 
B)  $78 000. 
C)  $68 000. 
D)  $70 000. 
A)  $76 000. 
B)  $78 000. 
C)  $68 000. 
D)  $70 000.

Question 8

The net amount of employee benefit liabilities acquired in a business combination are measured by using the:

Accepted Answer

A)  estimated total of future cash outflows, undiscounted. 
B)  face value of the liabilities. 
C)  present value method. 
D)  cash method. 
A)  estimated total of future cash outflows, undiscounted. 
B)  face value of the liabilities. 
C)  present value method. 
D)  cash method.

Question 9

If shares are issued as part of the consideration paid, transactions costs such as brokerage fees may be incurred. Under AASB 3/IFRS 3 Business Combinations, the appropriate accounting treatment for such costs in the records of the acquirer is a debit to:

Accepted Answer

A)  cash. 
B)  investments. 
C)  share capital. 
D)  acquisition expenses. 
A)  cash. 
B)  investments. 
C)  share capital. 
D)  acquisition expenses.

Question 10

Which of the following items would not be recognised as an intangible asset in a business combination?

Accepted Answer

A)  experienced marketing team. 
B)  newspaper mastheads. 
C)  patents. 
D)  trademarks. 
A)  experienced marketing team. 
B)  newspaper mastheads. 
C)  patents. 
D)  trademarks.

Question 11

The acquisition date for a business combination is the date on which:

Accepted Answer

A)  the business combination is announced to the public. 
B)  the acquirer announces the acquisition to the acquiree. 
C)  the acquirer effectively obtains control of the acquiree. 
D)  a substantive agreement between the combining parties is reached. 
A)  the business combination is announced to the public. 
B)  the acquirer announces the acquisition to the acquiree. 
C)  the acquirer effectively obtains control of the acquiree. 
D)  a substantive agreement between the combining parties is reached.

Question 12

A business combination is defined as:

Accepted Answer

A)  a transaction in which an acquirer obtains control of an acquiree. 
B)  a transaction in which one entity obtains control of one or more other entities. 
C)  a transaction or other event in which an acquirer obtains control of one or more businesses. 
D)  a transaction or other event in which an entity obtains control of one or more businesses. 
A)  a transaction in which an acquirer obtains control of an acquiree. 
B)  a transaction in which one entity obtains control of one or more other entities. 
C)  a transaction or other event in which an acquirer obtains control of one or more businesses. 
D)  a transaction or other event in which an entity obtains control of one or more businesses.

Question 13

Goodwill is measured as the difference between the:

Accepted Answer

A)  cost of the assets given up, and the cost of the net assets acquired. 
B)  cost of the net assets acquired, and the net present value of the consideration given up. 
C)  present value of the consideration transferred, and the present value of the net assets acquired 
D)  fair value of the consideration transferred, and the fair value of the assets and liabilities acquired. 
A)  cost of the assets given up, and the cost of the net assets acquired. 
B)  cost of the net assets acquired, and the net present value of the consideration given up. 
C)  present value of the consideration transferred, and the present value of the net assets acquired 
D)  fair value of the consideration transferred, and the fair value of the assets and liabilities acquired.

Question 14

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

Accepted Answer

A)  its fair value can be measured reliably. 
B)  it is a possible obligation and it is probable that it will occur. 
C)  it is a present obligation that has failed to meet the recognition criteria. 
D)  it is probable that an outflow of resources may occur in order to settle the obligation. 
A)  its fair value can be measured reliably. 
B)  it is a possible obligation and it is probable that it will occur. 
C)  it is a present obligation that has failed to meet the recognition criteria. 
D)  it is probable that an outflow of resources may occur in order to settle the obligation.

Question 15

Mary Limited acquired the identifiable assets and liabilities of Joan Limited for $530 000. The items acquired, stated at fair value, are: equipment $296 000; inventories $160 000; accounts receivable $104 000; patents $60 000; accounts payable $80 000. The difference on acquisition is:

Accepted Answer

A)  goodwill of $10 000 
B)  goodwill of $170 000 
C)  gain on bargain purchase $10 000 
D)  gain on bargain purchase $170 000 
A)  goodwill of $10 000 
B)  goodwill of $170 000 
C)  gain on bargain purchase $10 000 
D)  gain on bargain purchase $170 000

Question 16

Byron Limited estimated the net present value of future cash flows from specialised equipment acquired under a business combination to be $120 000. A replacement cost for the equipment is estimated to be $132 000. The equipment has been independently appraised at a value of $122 000. A similar item of equipment cost the acquirer $118 000 last year. What is the value for recognition of the equipment under a business combination?

Accepted Answer

A)  $118 000. 
B)  $122 000. 
C)  $120 000. 
D)  $132 000. 
A)  $118 000. 
B)  $122 000. 
C)  $120 000. 
D)  $132 000.

Question 17

The consideration transferred in a business combination is measured as the fair value of the:

Accepted Answer

A)  consideration given. 
B)  net assets acquired. 
C)  costs directly attributable to the combination. 
D)  consideration given plus directly attributable costs. 
A)  consideration given. 
B)  net assets acquired. 
C)  costs directly attributable to the combination. 
D)  consideration given plus directly attributable costs.

Question 18

Goodwill arising in a business combination is classified as a(n):

Accepted Answer

A)  asset. 
B)  liability. 
C)  expense associated with the acquisition. 
D)  item in equity. 
A)  asset. 
B)  liability. 
C)  expense associated with the acquisition. 
D)  item in equity.

Question 19

In a business combination, the acquirer is the party that:

Accepted Answer

A)  sells the acquired entity. 
B)  obtains control of the other entities. 
C)  receives the acquisition consideration. 
D)  concedes control over the acquired entities. 
A)  sells the acquired entity. 
B)  obtains control of the other entities. 
C)  receives the acquisition consideration. 
D)  concedes control over the acquired entities.

Question 20

In a business combination, the acquiree is the party that:

Accepted Answer

A)  pays the acquisition consideration. 
B)  finances the business combination. 
C)  gives up control over the net assets acquired. 
D)  obtains control of the net assets the other entity. 
A)  pays the acquisition consideration. 
B)  finances the business combination. 
C)  gives up control over the net assets acquired. 
D)  obtains control of the net assets the other entity.

Exam 25: Business Combinations

AASB 3/IFRS 3 is relevant when accounting for a business combination that:

The information contained within Appendix B of AASB 3/IFRS 3 in relation to disclosure:

Under AASB 3/IFRS 3, the method of accounting for a business combination is the:

For a tangible asset to be recognised by an acquirer under a business combination it must be probable that future economic benefits will flow to the acquirer and:

Where the acquirer purchases assets and assumes liabilities of another entity it does not need to consider measurement of:

The net amount of employee benefit liabilities acquired in a business combination are measured by using the:

If shares are issued as part of the consideration paid, transactions costs such as brokerage fees may be incurred. Under AASB 3/IFRS 3 Business Combinations, the appropriate accounting treatment for such costs in the records of the acquirer is a debit to:

Which of the following items would not be recognised as an intangible asset in a business combination?

The acquisition date for a business combination is the date on which:

A business combination is defined as:

Goodwill is measured as the difference between the:

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

Mary Limited acquired the identifiable assets and liabilities of Joan Limited for $530 000. The items acquired, stated at fair value, are: equipment $296 000; inventories $160 000; accounts receivable $104 000; patents $60 000; accounts payable $80 000. The difference on acquisition is:

The consideration transferred in a business combination is measured as the fair value of the:

Goodwill arising in a business combination is classified as a(n):

In a business combination, the acquirer is the party that:

In a business combination, the acquiree is the party that:

Accounting Regulation and the Conceptual Framework

Application of Accounting Theory

Fair Value Measurement

Inventories

Property, Plant and Equipment

Intangible Assets

Impairment of Assets

Provisions, Contingent Liabilities and Contingent Assets

Employee Benefits

Leases

Financial Instruments

Income Taxes

Share Capital and Reserves

Share Based Payment

Revenue

Presentation of Financial Statements

Statement of Cash Flows

Accounting Policies and Other Disclosures

Earnings Per Share

Operating Segments

Related Party Disclosures

Sustainability and Corporate Social Responsibility Recording

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Foreign Currency Financial Statements

Consolidation: Controlled Entities

Consolidation: Wholly Owned Entities

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Joint Arrangements

Insolvency and Liquidation

Accounting for Mineral Resources

Agriculture

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