Deck 9: Business Combinations

Question 1

A group of entities made up of the parent entity and any subsidiary entities is known as a/an:

A)equity entity
B)controlling entity
C)proprietary entity
D)economic entity

Answer 1

D

Question 2

The identifiable assets acquired in a business combination may include which of the following?

A)goodwill
B)trademarks
C)patents
D)both B and C

Answer 2

D

Question 3

According to AASB 3,identification of the acquirer can be done by considering which of the following?

A)the existence of a large minority voting interest in the combined entity when no other owner or organised group of owners has a significant voting interest
B)the composition of the governing body of the combined entity
C)the relative voting rights in the combined entity after the business combination
D)all of the above

Answer 3

D

Question 4

AASB 3 specifically does not apply to which of the following?

A)the acquisition of an asset or group of activities that does not constitute a business
B)the acquisition of an asset or group of activities that constitutes a business
C)a transaction or other event in which an acquirer obtains control of one or more businesses
D)all of the above

Question 5

Coolum Ltd acquired a business from Mudjumba Ltd on 1 July 2011 for a purchase consideration of $500 000 cash.At this date,the identifiable assets of Mudjimba Ltd had a fair value of $600 000 and the liabilities had a fair value of $70 000.Identify whether Collum Ltd should recognise goodwill or a gain on bargain purchase and the correct amount.

A)goodwill of $100 000
B)gain on bargain purchase of $100 000
C)gain on bargain purchase of $30 000
D)goodwill of $30 000

Question 6

Which of the following statements is correct?

A)for any business combination,one of the combining entities must be identified as the acquirer
B)the acquirer is defined as the business or businesses the acquiree obtains control of in a business combination
C)for any business combination,both of the combining entities must be identified as the acquirer
D)the acquiree is the entity that obtains control of the acquirer

Question 7

Which of the following statements is incorrect?

A)the acquisition date is defined as the date at which the acquirer obtains control of the acquiree
B)the acquisition date is defined as the date at which acquirer obtains significant influence over the acquiree
C)control indicates that the acquirer has the capacity to obtain benefits from the activities of the acquired entity or business
D)the acquisition date represents the time at which the fair value of the acquisition consideration must be measured

Question 8

Explain the process of recognising and measuring the identifiable assets and liabilities of the acquiree.

Question 9

The final step in the acquisition method is:

A)determining the acquisition date
B)identifying the acquirer
C)recognising and measuring the identifiable assets acquired,the liabilities assumed and any non- controlling interest in the acquiree
D)recognising and measuring goodwill or a gain from a bargain purchase

Question 10

Which of the following statements is incorrect?

A)AASB 3 allows a period of time for the acquirer to obtain the information necessary to adjust,if necessary,any provisional estimates originally made
B)provisional estimates may relate to the consideration transferred for the acquiree
C)it may be necessary for an entity to make provisional estimates when initially recording a business combination in its accounts
D)adjustments to provisional amounts for identifiable assets and liabilities are generally recognised through a revenues or expense in the profit and loss

Question 11

A non- controlling interest arises when:

A)the acquirer does not acquire 100% of the acquiree
B)the acquirer acquires 100% of the acquiree
C)the acquiree does not acquire 100% of the acquirer
D)all of the above

Question 12

Discuss the objectives of AASB 3.

Question 13

AASB 3 establishes principles and requirements for how the acquirer:

A)determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
B)recognises and measures in its financial statements the identifiable assets acquired,the liabilities assumed and any non- controlling interest in the acquiree
C)recognises and measures the goodwill acquired in the business combination or a gain from a bargain purchase
D)all of the above

Question 14

An acquirer might obtain control of an acquiree in a variety of ways including:

A)by issuing equity securities
B)by incurring liabilities
C)both A and B
D)none of the above

Question 15

Goodwill is initially recorded as:

A)the net amount of the recognised identifiable assets acquired and liabilities assumed
B)the excess of the net amount of the recognised identifiable assets acquired and liabilities assumed over the excess of the consideration transferred
C)the excess of the consideration transferred over the net amount of the recognised identifiable assets acquired and liabilities assumed
D)none of the above

Question 16

Examples of acquisition- related costs in a business combination include:

A)legal service fees
B)general administrative costs
C)finder's fees
D)all of the above

Question 17

The AASB 3 disclosures requirements for each material business combination include:

A)details of acquired receivables
B)a description of the factors that make up the goodwill recognised
C)the percentage of voting equity interests acquired
D)all of the above

Question 18

Noosa Ltd acquired a business from Tewantin Ltd on 1 January 2011.At this date,the fair value of the consideration transferred was $1 500 000.The fair value of the identifiable assets acquired was $1 480 000,while the fair value of the liabilities assumed amounted to $80 000.The value of goodwill recognised by Noosa Ltd at the date of acquisition was:

A)$100 000
B)$20 000
C)$1 420 000
D)$1 400 000

Question 19

Before recognising a gain on a bargain purchase,the acquirer shall review the procedures used to measure the amounts that AASB 3 requires to be recognised at the acquisition date for which of the following:

A)the consideration transferred
B)the non- controlling interest in the acquiree,if any
C)the identifiable assets acquired and liabilities assumed
D)all of the above

Question 20

Which of the following statements is correct?

A)the identifiable assets acquired and the liabilities assumed must be measured at their fair value at acquisition date
B)the identifiable assets acquired and the liabilities assumed must be measured at their fair value at balance date
C)the identifiable assets acquired and the liabilities assumed must be measured at their recoverable amount at acquisition date
D)the identifiable assets acquired and the liabilities assumed must be measured at their book value at balance date

Question 21

Explain the three elements of a business.

Question 22

Explain the accounting requirements for acquisition- related costs.

Question 23

Explain the process and purpose of gaining control of a business by purchasing shares in the acquiree,

Question 24

Discuss the additional guidance given in AASB 3 for identifying the acquirer.

Question 25

Identify the major disclosure requirements in AASB 3 for each material business combination occurring during the reporting period.