Deck 25: Business Combinations

Question 1

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

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

Answer 1

A

Question 2

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

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

Answer 2

B

Question 3

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

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

Answer 3

C

Question 4

A business combination is defined as:

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 5

Oliveira Limited estimated that the net present value of future cash flows from equipment acquired in a business combination is $15 000. The cost of replacing the equipment is estimated to be $18 000. The equipment has been independently appraised at a value of $14 000. A similar item of equipment cost the acquirer $19 000 last year. The value at which the equipment will be recognised when recording the business combination is:

A) $14 000.
B) $15 000.
C) $18 000.
D) $19 000.

Question 6

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

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

Question 7

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

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

Question 8

In order 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:

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

Question 9

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

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

Question 10

When an acquirer accounts for a business combination they have to consider:
I - Recognition of the identifiable assets acquired.
II - Measurement of the identifiable assets acquired.
III - Recognition of the liabilities assumed.
IV - Measurement of the liabilities assumed.

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

Question 11

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

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

Question 12

Bolton Limited acquires the net assets of Pamelia Limited for a cash consideration of $100 000. One half is to be paid on acquisition date and one half is payable in one year's time. The appropriate discount rate is 10% p.a. The present value of the cash outflow in one year's time is:

A) $45 454.
B) $50 000.
C) $54 545.
D) $55 000.

Question 13

Johnson Limited estimated the net present value of future cash flows from specialised plant acquired under a business combination to be $30 000. A replacement cost for the plant is estimated to be $33 000. The plant has been independently appraised at a value of $31 000. A similar item of plant cost the acquirer $29 000 last year. What is the value for recognition of the plant under a business combination?

A) $29 000.
B) $30 000.
C) $33 000.
D) $31 000.

Question 14

Fredericks Limited acquired the identifiable assets and liabilities of Nicole Limited for $134 000. The items acquired, stated at fair value, are: plant $72 000; inventories $40 000; accounts receivable $18 000; patents $10 000; accounts payable $16 000. The difference on acquisition is:

A) gain on bargain purchase $10 000.
B) gain on bargain purchase $16 000.
C) goodwill of $10 000.
D) goodwill of $124 000.

Question 15

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

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

Question 16

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

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

Question 17

Under AASB 3/IFRS 3 Business Combinations, a gain on bargain purchase arises when the acquirer's interest in the fair value of the acquiree's identifiable assets and liabilities is:

A) less than the carrying amount of the net assets acquired.
B) less than the consideration transferred.
C) greater than the consideration transferred.
D) more than the book values of the identifiable assets acquired.

Question 18

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

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

Question 19

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

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

Question 20

Net employee benefit liabilities acquired in a business combination are measured by using the:

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

Question 21

Goodwill arising in a business combination is classified as:

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

Question 22

Goodwill is measured as the difference between the:

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 consideration transferred, and the fair value of the assets and liabilities acquired.

Question 23

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

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