Question 1

The fair value of financial instruments acquired in a business combination will be:

Accepted Answer

A)  market value in an active market 
B)  an estimate of fair value 
C)  either A or B 
D)  none of the above 
A)  market value in an active market 
B)  an estimate of fair value 
C)  either A or B 
D)  none of the above C

Question 2

In the year ended June 30 20X7,Woof Ltd acquired the assets and assumed the liabilities of the Doggie Biscuits operation from Fido Ltd for $10,000,000.At the date of acquisition,the fair values of the net separable assets and liabilities of the operation were $8,000,000 and $1,000,000 respectively.Based on this information,the transaction has resulted in:

Accepted Answer

A)  A business combination of Woof Ltd and Doggie Biscuits. 
B)  The acquisition of certain assets and liabilities, which is not a business combination since Doggie Biscuits is not a business but simply part of the Fido Ltd business. 
C)  The acquisition of certain assets and liabilities, which is not a business combination since Doggie Biscuits is not managed to provide a return to investors but only to provide a return to Fido Ltd. 
D)  None of the above. 
A)  A business combination of Woof Ltd and Doggie Biscuits. 
B)  The acquisition of certain assets and liabilities, which is not a business combination since Doggie Biscuits is not a business but simply part of the Fido Ltd business. 
C)  The acquisition of certain assets and liabilities, which is not a business combination since Doggie Biscuits is not managed to provide a return to investors but only to provide a return to Fido Ltd. 
D)  None of the above. A

Question 3

A contingent liability recognised in a business combination will be recorded:

Accepted Answer

A)  in the subsidiary's accounts 
B)  in the group accounts 
C)  either A or B 
D)  none of the above 
A)  in the subsidiary's accounts 
B)  in the group accounts 
C)  either A or B 
D)  none of the above B

Question 4

If a contingent liability of a subsidiary is recognised in a business combination,on consolidation the group will record:

Accepted Answer

A)  a deferred tax liability 
B)  a deferred tax asset 
C)  a reduction in goodwill 
D)  none of the above 
A)  a deferred tax liability 
B)  a deferred tax asset 
C)  a reduction in goodwill 
D)  none of the above

Question 5

Discuss the reasons why the fair value of a subsidiary's net assets may not be equal to their carrying amount

Accepted Answer

Fair value - carrying amount:
- The carr

Question 6

Discuss the reasons for ignoring tax effects in respect of goodwill recognised on consolidation in a business combination

Accepted Answer

Tax effects of goodwill:
- Goodwill amor

Question 7

Intra group dividends do not result in a requirement for tax effect adjustments on consolidation if:

Accepted Answer

A)  group companies are Australian 
B)  the dividend is fully franked 
C)  Both A and B 
D)  none of the above 
A)  group companies are Australian 
B)  the dividend is fully franked 
C)  Both A and B 
D)  none of the above

Question 8

All assets acquired in a business combination must be recognised at fair value

Accepted Answer

A) True 
 B)False

Question 9

Discuss the reasons for the existence of reverse acquisitions.

Accepted Answer

Reverse acquisitions:
- The acquisition

Question 10

Intra group dividends do not require any tax effect adjustments on consolidation

Accepted Answer

A) True 
 B)False

Question 11

The recorded equity of a subsidiary at acquisition will always equal the fair value of the subsidiary's net assets.

Accepted Answer

A) True 
 B)False

Question 12

A gain on bargain purchase arising in a business combination does not have any deferred tax implications

Accepted Answer

A) True 
 B)False

Question 13

Where the value of an investment in a subsidiary increases,a deferred tax liability is generally not required to be recognised when:

Accepted Answer

A)  it is unlikely that profits of the subsidiary will be distributed as dividends 
B)  it is unlikely that the subsidiary investment will be sold 
C)  both A and B 
D)  none of the above 
A)  it is unlikely that profits of the subsidiary will be distributed as dividends 
B)  it is unlikely that the subsidiary investment will be sold 
C)  both A and B 
D)  none of the above

Question 14

Explain the basis on which adjustments to deferred tax assets and liabilities arise on consolidation

Accepted Answer

Deferred tax assets/liabilities on conso

Question 15

Accounting Standard AASB 3 Business Combinations requires the recognition of contingent assets in a business combination

Accepted Answer

A) True 
 B)False

Question 16

Management of acquiring companies have incentive to provide for as many future costs as possible in a business combination

Accepted Answer

A) True 
 B)False

Question 17

A Company purchases the net assets of B Company which consists of land $2,100,000 and a liability of $100,000,paying by issuing 2,000,000 x $1 which is the fair value of the shares in A Company.A Company will record the acquisition as follows:

Accepted Answer

A)  DR Investment in B $2,000,000 CR Share Capital $2,000,000 
B)  DR Land $2,100,000 CR Liability $100,000
CR Cash $2,000,000 
C)  DR Land $2,100,000 CR Liability $100,000
CR Share Capital $2,000.000 
D)  none of the above 
A)  DR Investment in B $2,000,000 CR Share Capital $2,000,000 
B)  DR Land $2,100,000 CR Liability $100,000
CR Cash $2,000,000 
C)  DR Land $2,100,000 CR Liability $100,000
CR Share Capital $2,000.000 
D)  none of the above

Question 18

A company records a gain on bargain purchase of $40,000 on the acquisition of a subsidiary.Assuming there are no other tax adjustments for any companies,if the trading profit of the group before tax was $140,000 and given a tax rate of 30% the group income tax expense would be:

Accepted Answer

A)  $42,000 
B)  $54,000 
C)  $30,000 
D)  none of the above 
A)  $42,000 
B)  $54,000 
C)  $30,000 
D)  none of the above

Question 19

A company purchases all the issued shares of B company for $2,000,000.The net assets of B Company consist of land $2,100,000 and a liability of $100,000.A company will record the acquisition as follows:

Accepted Answer

A)  DR Land $2,100,000 CR Liability $100,000
CR Cash $2,000,000 
B)  DR Shares in B $2,000,000 CR Share Capital $2,000,000 
C)  DR Shares in B $2,000,000 CR Cash $2,000,000 
D)  none of the above 
A)  DR Land $2,100,000 CR Liability $100,000
CR Cash $2,000,000 
B)  DR Shares in B $2,000,000 CR Share Capital $2,000,000 
C)  DR Shares in B $2,000,000 CR Cash $2,000,000 
D)  none of the above

Question 20

Revaluation of assets to fair value in a business combination will be accounted for:

Accepted Answer

A)  in the records of the subsidiary 
B)  on consolidation 
C)  either A or B 
D)  none of the above 
A)  in the records of the subsidiary 
B)  on consolidation 
C)  either A or B 
D)  none of the above

The fair value of financial instruments acquired in a business combination will be:

A contingent liability recognised in a business combination will be recorded:

If a contingent liability of a subsidiary is recognised in a business combination,on consolidation the group will record:

Discuss the reasons why the fair value of a subsidiary's net assets may not be equal to their carrying amount

Discuss the reasons for ignoring tax effects in respect of goodwill recognised on consolidation in a business combination

Intra group dividends do not result in a requirement for tax effect adjustments on consolidation if:

All assets acquired in a business combination must be recognised at fair value

Discuss the reasons for the existence of reverse acquisitions.

Intra group dividends do not require any tax effect adjustments on consolidation

The recorded equity of a subsidiary at acquisition will always equal the fair value of the subsidiary's net assets.

A gain on bargain purchase arising in a business combination does not have any deferred tax implications

Where the value of an investment in a subsidiary increases,a deferred tax liability is generally not required to be recognised when:

Explain the basis on which adjustments to deferred tax assets and liabilities arise on consolidation

Accounting Standard AASB 3 Business Combinations requires the recognition of contingent assets in a business combination

Management of acquiring companies have incentive to provide for as many future costs as possible in a business combination

A Company purchases the net assets of B Company which consists of land $2,100,000 and a liability of $100,000,paying by issuing 2,000,000 x $1 which is the fair value of the shares in A Company.A Company will record the acquisition as follows:

A company records a gain on bargain purchase of $40,000 on the acquisition of a subsidiary.Assuming there are no other tax adjustments for any companies,if the trading profit of the group before tax was $140,000 and given a tax rate of 30% the group income tax expense would be:

A company purchases all the issued shares of B company for $2,000,000.The net assets of B Company consist of land $2,100,000 and a liability of $100,000.A company will record the acquisition as follows:

Revaluation of assets to fair value in a business combination will be accounted for:

Text Objectives and Introduction to Consolidation

Principles of Consolidation

Intra-Group Transactions

Non-Controlling Interest

Partly-Owned Subsidiaries: Indirect Non-Controlling Interest

Consolidated Cash Flow Statements

Accounting for Joint Arrangements

Accounting for Associates and Joint Ventures: the Equity Method

Translation and Consolidation of Foreign Currency Financial Statements

Segment Reporting by Diversified Entities

Filters

Exam 3: Fair Value Adjustments and Tax Effects

The fair value of financial instruments acquired in a business combination will be:

A contingent liability recognised in a business combination will be recorded:

If a contingent liability of a subsidiary is recognised in a business combination,on consolidation the group will record:

Discuss the reasons why the fair value of a subsidiary's net assets may not be equal to their carrying amount

Discuss the reasons for ignoring tax effects in respect of goodwill recognised on consolidation in a business combination

Intra group dividends do not result in a requirement for tax effect adjustments on consolidation if:

All assets acquired in a business combination must be recognised at fair value

Discuss the reasons for the existence of reverse acquisitions.

Intra group dividends do not require any tax effect adjustments on consolidation

The recorded equity of a subsidiary at acquisition will always equal the fair value of the subsidiary's net assets.

A gain on bargain purchase arising in a business combination does not have any deferred tax implications

Where the value of an investment in a subsidiary increases,a deferred tax liability is generally not required to be recognised when:

Explain the basis on which adjustments to deferred tax assets and liabilities arise on consolidation

Accounting Standard AASB 3 Business Combinations requires the recognition of contingent assets in a business combination

Management of acquiring companies have incentive to provide for as many future costs as possible in a business combination

A Company purchases the net assets of B Company which consists of land $2,100,000 and a liability of $100,000,paying by issuing 2,000,000 x $1 which is the fair value of the shares in A Company.A Company will record the acquisition as follows:

A company records a gain on bargain purchase of $40,000 on the acquisition of a subsidiary.Assuming there are no other tax adjustments for any companies,if the trading profit of the group before tax was $140,000 and given a tax rate of 30% the group income tax expense would be:

A company purchases all the issued shares of B company for $2,000,000.The net assets of B Company consist of land $2,100,000 and a liability of $100,000.A company will record the acquisition as follows:

Revaluation of assets to fair value in a business combination will be accounted for:

Text Objectives and Introduction to Consolidation

Principles of Consolidation

Intra-Group Transactions

Non-Controlling Interest

Partly-Owned Subsidiaries: Indirect Non-Controlling Interest

Consolidated Cash Flow Statements

Accounting for Joint Arrangements

Accounting for Associates and Joint Ventures: the Equity Method

Translation and Consolidation of Foreign Currency Financial Statements

Segment Reporting by Diversified Entities

Filters