Question 1

Suncorp Limited acquired a 15% interest in Milton Pty Ltd on 1 January 2014. On 15 September 2014 it acquired an additional 25% interest, and on 15 March 2015 a further 15%. Under AASB 3/IFRS 3, a business combination occurs on:

Accepted Answer

A)  1 January 2014. 
B)  15 September 2014. 
C)  15 March 2015. 
D)  all of the above.

Question 2

AASB 3/IFRS 3 Business Combinations requires disclosure of 'a qualitative description of the factors that make up goodwill recognised, such as expected synergies from combining operations of the acquiree and the acquirer, intangible assets that do not qualify for separate recognition or other factors'.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is incorrect?

Accepted Answer

A)  Goodwill cannot be revalued. 
B)  Goodwill is subject to amortisation. 
C)  Goodwill is not subject to amortisation. 
D)  AASB 138/IAS 38 Intangible Assets does not allow the recognition of internally generated goodwill.

Question 4

Where an acquiree liquidates, the balance of the Shareholders' Distribution account is transferred to the Liquidation account.

Accepted Answer

A) True 
 B)False

Question 5

Apha Limited acquired the net assets of Beta Limited. Alpha Limited provided an item of equipment as part of the consideration. The fair value of the equipment was $26 000. It cost $40 000 and had a carrying amount of $24 000. Which of the following entries appropriately reflects the gain or loss on the equipment?

Accepted Answer

A)  DR Loss on sale $2000 
B)  CR Loss on sale $2000 
C)  CR Gain on sale $2000 
D)  Dr Gain on sale $2000.

Question 6

According to Johnson and Petrone (1998), which of the following is not a component of goodwill?

Accepted Answer

A)  Overpayment by the acquirer. 
B)  Overvaluation of the consideration paid by the acquirer. 
C)  Excess of the book values over the fair values of the acquiree's recognised assets. 
D)  Excess of the fair values over the book values of the acquiree's recognised assets.

Question 7

According to AASB 3/IFRS 3 Business Combinations, the appropriate accounting treatment for the costs of issuing shares by the acquirer as part of a business combination is to record them as a debit to:

Accepted Answer

A)  share capital. 
B)  share issue reserve. 
C)  retained earnings. 
D)  acquisition expenses.

Question 8

How many input levels does AASB 13/IFRS 13 Fair Value Measurement identify for the inputs to the valuation techniques?

Accepted Answer

A)  2 
B)  6 
C)  4 
D)  3

Question 9

Where equity instruments are issued as part of the consideration in a business combination, any costs associated with issuing such equity instruments are included as part of the cost of the business combination.

Accepted Answer

A) True 
 B)False

Question 10

The use of estimates when measuring the fair values of assets results that the measures are unreliable.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

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 12

The cost approach to determining fair value involves:

Accepted Answer

A)  determining an amount which reflects the amount currently needed to replace the service capacity of an asset. 
B)  using prices generated by market transactions involving identical or comparable assets or liabilities. 
C)  converting future amounts such as cash flows to a current, discounted amount. 
D)  none of the above.

Question 13

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

Accepted Answer

A)  control method. 
B)  acquisition method. 
C)  purchase method. 
D)  combination method.

Question 14

Which of the following statements in relation to contingent consideration is incorrect?

Accepted Answer

A)  At acquisition date, contingent consideration is measured at fair value. 
B)  Where the contingent consideration is classified as equity, there is no remeasurement required on settlement. 
C)  Subsequent adjustments to contingent consideration affect the goodwill calculated at acquisition date. 
D)  Changes in the amount of an expected cashflow where the contingent consideration represents a liability that is within the scope of AASB 137/IAS 37 are accounted for through profit and loss.

Question 15

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

Accepted Answer

A)  obtains control of the acquiree. 
B)  concedes control over the acquired entities. 
C)  sells the acquired entity. 
D)  the acquiree obtains control of in a business combination.

Question 16

Cockroaches Limited acquired the identifiable assets, liabilities and contingent liabilities of Inglis Limited for $268 000. The items acquired, stated at fair value, are: plant $144 000; inventory $80 000; accounts receivable $36 000; patents $20 000; and accounts payable $32 000. The difference on acquisition is:

Accepted Answer

A)  gain on bargain purchase $20 000. 
B)  gain on bargain purchase $32 000. 
C)  goodwill of $20 000. 
D)  goodwill of $248 000.

Question 17

AASB 3/IFRS 3 Business Combinations requires an acquiree to go into liquidation in the event of a business combination.

Accepted Answer

A) True 
 B)False

Question 18

The owners of Emily Limited sold the business to Georgia Limited. At acquisition date, the business had an item of plant which cost $70 000 and had accumulated depreciation of $24 000. The liquidation journal entry is which of the following?

Accepted Answer

A)  DR Liquidation $70 000 CR Plant $70 000 
B)  DR Liquidation $46 000 DR Accumulated depreciation $24 000
CR Plant $70 000 
C)  DR Plant $46 000 CR Liquidation $46 000 
D)  DR Plant $46 000 DR Accumulated depreciation $24 000
CR Liquidation $70 000

Question 19

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

Accepted Answer

A)  the liabilities assumed. 
B)  the identifiable assets. 
C)  the equity of the acquiree. 
D)  goodwill or a gain from bargain purchase.

Question 20

A business combination is defined in AASB 3/IFRS 3 as a transaction:

Accepted Answer

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

Exam 3: Business Combinations

Suncorp Limited acquired a 15% interest in Milton Pty Ltd on 1 January 2014. On 15 September 2014 it acquired an additional 25% interest, and on 15 March 2015 a further 15%. Under AASB 3/IFRS 3, a business combination occurs on:

Which of the following statements is incorrect?

Where an acquiree liquidates, the balance of the Shareholders' Distribution account is transferred to the Liquidation account.

According to Johnson and Petrone (1998) , which of the following is not a component of goodwill?

According to AASB 3/IFRS 3 Business Combinations, the appropriate accounting treatment for the costs of issuing shares by the acquirer as part of a business combination is to record them as a debit to:

How many input levels does AASB 13/IFRS 13 Fair Value Measurement identify for the inputs to the valuation techniques?

Where equity instruments are issued as part of the consideration in a business combination, any costs associated with issuing such equity instruments are included as part of the cost of the business combination.

The use of estimates when measuring the fair values of assets results that the measures are unreliable.

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

The cost approach to determining fair value involves:

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

Which of the following statements in relation to contingent consideration is incorrect?

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

AASB 3/IFRS 3 Business Combinations requires an acquiree to go into liquidation in the event of a business combination.

The owners of Emily Limited sold the business to Georgia Limited. At acquisition date, the business had an item of plant which cost $70 000 and had accumulated depreciation of $24 000. The liquidation journal entry is which of the following?

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

A business combination is defined in AASB 3/IFRS 3 as a transaction: