Question 1

IFRS defines a business combination as a transaction or other event in which an acquirer obtains control of one or more businesses.

Accepted Answer

A) True 
 B)False

Question 2

Having recognized a contingent consideration and classified it as equity, the subsequent treatment is:

Accepted Answer

A) It is re-measured at fair value with changes in the income statement. 
B) It is carried at book value with no adjustments made. 
C) No remeasurement is required and the subsequent settlement is accounted for within equity. 
D) It is re-measured at fair value with changes in OCI.

Question 3

Which of the following statements regarding step acquisitions is FALSE?

Accepted Answer

A) An acquirer can obtain its controlling interest in the acquiree by acquiring further shares and thereby adding to its previously held equity interest. 
B) There may be a number of step purchases of shares in the acquiree prior to the obtaining of control. 
C) The acquirer will recognize an investment in the acquiree with each step acquisition being measured at book value. 
D) In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss.

Question 4

Where the acquirer buys shares of the acquiree from the shareholders, there is _____ effect on the acquiree records.

Accepted Answer

A) considerable 
B) minimal 
C) contingent 
D) no

Question 5

Which of the following statements regarding acquirers and acquirees is FALSE?

Accepted Answer

A) The acquiree is usually the entity that has the largest minority voting interest in an entity that has a widely dispersed ownership. 
B) The acquirer is usually the combining entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity. 
C) In a takeover, it is normally the larger company that takes over the smaller company. 
D) Normally, the entity that is the acquirer is the one that undertakes action to take over the acquiree.

Question 6

Under IFRS 3, Business Combinations, which method must be used to account for business combinations?

Accepted Answer

A) Purchase method. 
B) Acquisition method. 
C) New entity method. 
D) Pooling-of-interests method.

Question 7

Cowan Ltd. acquired 100% of the net assets of Opus Co. for $1,120,000. At the time of acquisition, Opus had the following: $\begin{array}{|l|r|r|} 
\hline& \text { Book Value } & \text { Fair value } \
\hline \text { Inventory } & \$ 2,800,000 & \$ 2,800,000 \
\hline \text { Land } & 168,000 & 238,000 \
\hline \text { Liabilities } & 1,960,000 & 1,960,000 \
\hline
\end{array}$ In this acquisition, how much goodwill has been created?

Accepted Answer

A) $0 
B) 42,000 
C) $70,000 
D) $112,000

Question 8

At the acquisition date, the contingent consideration is measured at book value.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is FALSE?

Accepted Answer

A) IFRS defines a business combination as a transaction or other event in which an acquirer obtains control of one or more businesses. 
B) IFRS 3 applies only to combinations involving 'businesses', thereby excluding other exchanges of assets between entities. 
C) A business generally must be capable of providing a return to the owners, and would always involve entities whose activities have inputs, processes and outputs. 
D) IFRS 3 excludes certain combinations of businesses from its scope, including those established as joint ventures or under common control.

Question 10

Which of the following statements regarding accounting in the records of the acquiree is FALSE?

Accepted Answer

A) Where the acquirer purchases the acquiree's assets and liabilities, the acquiree may continue in existence or it may liquidate. 
B) If the acquiree subsequently decides to liquidate, it transfers the cash remaining to the shareholders as a liquidating dividend. 
C) When the acquirer buys only shares in the acquiree from the shareholders of the acquiree, there are no entries in the records of the acquiree because the transaction is between the acquirer and the shareholders of the acquiree entity. 
D) Where the acquirer purchases the acquiree's assets and liabilities, the acquiree must liquidate.

Question 11

The use of ______________ as the key criterion to determine the acquisition date ensures that the substance of the transaction determines the accounting rather than the form of the transaction.

Accepted Answer

A) physical possession 
B) control 
C) payment of consideration 
D) valuation.

Question 12

Under IFRS 3.25, an acquirer is required to recognize and measure:

Accepted Answer

A) The effect of any temporary differences of an acquiree that exist at the acquisition date or that arise as a result of the acquisitions. 
B) The effect of any temporary differences and carryforwards of an acquiree that exist at the acquisition date or that arise as a result of the acquisitions. 
C) The effect of any carryforwards of an acquiree that arise as a result of the acquisitions. 
D) Any temporary differences and carryforwards of an acquiree that exist at the acquisition date.

Question 13

The use of physical possession as the key criterion to determine the acquisition date ensures that the substance of the transaction determines the accounting rather than the form of the transaction.

Accepted Answer

A) True 
 B)False

Question 14

Normally, the entity that is the acquirer is the one that undertakes action to take over the acquiree.

Accepted Answer

A) True 
 B)False

Question 15

After an exchange of shares in a business combination, each group of shareholders held 50% of the voting rights. Which of the following factors would be the strongest to be considered in determining the acquirer?

Accepted Answer

A) Composition of the board of directors. 
B) If there are material transactions between the combining companies. 
C) Which company initiated the combination. 
D) Head office location.

Exam 2: Business Combinations

IFRS defines a business combination as a transaction or other event in which an acquirer obtains control of one or more businesses.

Having recognized a contingent consideration and classified it as equity, the subsequent treatment is:

Which of the following statements regarding step acquisitions is FALSE?

Where the acquirer buys shares of the acquiree from the shareholders, there is _____ effect on the acquiree records.

Which of the following statements regarding acquirers and acquirees is FALSE?

Under IFRS 3, Business Combinations, which method must be used to account for business combinations?

At the acquisition date, the contingent consideration is measured at book value.

Which of the following statements is FALSE?

Which of the following statements regarding accounting in the records of the acquiree is FALSE?

The use of ______________ as the key criterion to determine the acquisition date ensures that the substance of the transaction determines the accounting rather than the form of the transaction.

Under IFRS 3.25, an acquirer is required to recognize and measure:

The use of physical possession as the key criterion to determine the acquisition date ensures that the substance of the transaction determines the accounting rather than the form of the transaction.

Normally, the entity that is the acquirer is the one that undertakes action to take over the acquiree.

After an exchange of shares in a business combination, each group of shareholders held 50% of the voting rights. Which of the following factors would be the strongest to be considered in determining the acquirer?