AFAR MIDTERM EXAM REVIEWER- Part 2 (with Answers)

1. C, Goodwill may still arise from the transaction. In business combinations achieved without transfer of
consideration, the acquirer substitutes the acquisition-date fair value of its interest in the acquiree for
the acquisition-date fair value of the consideration transferred to measure goodwill. Hence, goodwill
may still arise from the transaction.

Which of the following statements is true about a transaction whereby an entity acquires control over
another entity but no consideration is transferred?

A. The transaction is not accounted for as a business combination

B. No goodwill shall be recognized from the transaction

C. Goodwill may still arise from the transaction

D. A business combination cannot occur without transfer of consideration

C, Achieved in stages. A business combination is achieved in stages when the acquirer obtains control of
an acquiree in more than one transaction. It is also called as step acquisition.

2. A business combination that is called "step acquisition" is referred to as

A. Reverse acquisition

B. Share for share exchanges

C. Achieved in stages

D. Achieved without transfer of consideration

B. Business Combination is a transaction or other event in which an acquirer obtains control of one or
more businesses.

3. According to PFRS 3, it is a transaction or other event in which an acquirer obtains control of one or
more businesses.

A. Business alliance
B. Business combination

C. Business amalgamation

D. All of these

4. D. A or C.

In accounting for a business combination achieved in stages, the acquirer

I. Remeasures the previously held equity interest in the acquiree at acquisition-date fair value and

II. Recognizes the gain or loss on the premeasurement in

A. Profit or Loss - if the previously held equity interest was classified as FVPL, Investment in Associate, or
Investment in Joint Venture

B. Other Comprehensive Income - if the previously held equity interest was classified as FVOCI.

4. In a business combination achieved in stages, the acquirer remeasures its previously held equity
interest in the acquiree at the acquisition-date fair value. The gain or loss on remeasurement is
recognized in

A. Other Comprehensive Income

B. Directly in Equity

C. Profit or loss

D. A or C

5. D. Substitutes the acquisition-date fair value of its interest in the acquiree for the acquisition-date fair
value of the consideration transferred to measure goodwill.

In a business combination in which no consideration is transferred, the acquirer substitutes the

A. Cannot obtain control

B. Remeasures its previously held equity interest in the acquiree at the acquisition-date fair value.

C. Does not account for the transactions as a business combination

D. Substitutes the acquisition-date fair value of its interest in the acquiree for the acquisition-date fair
value of the consideration transferred to measure goodwill.

A. Major holdings.

Control exists if the investors has all of the following:

A. Power over the investee

B. Exposure or rights, to variable returns

C. Ability to affect returns through use of power

6. According to PFRS 10, which of the following is not an element of control?

A. Major holdings

B. Power

C. Ability to affect return

D. Exposure or rights to variable returns

C. Acquisition-date fair values

The identifiable assets acquired and liabilities assumed in a business combination are generally
measured at acquisition-date fair values.

7. The identifiable assets acquired and liabilities assumed in a business combination are generally
measured at
A. Cost

B. Previous carrying amounts

C. Acquisition-date fair values

D. Fair value less costs to sell

A. Closing Date

The acquisition date in a business combination is normally the closing date.

8. In accounting for business combinations, the acquisition date is normally the

A. Closing Date

B. Purchase Date

C. Control Date

D. Business Date

C. Recognized in profit or loss in the year of acquisition but only after reassessment of the assets
acquired and liabilities assumed in the business combination.

In accounting for business combinations, the gain on acquisition ( gain on a bargain purchase ) is
recognized in profit or loss in the year of acquisition but only after reassessment of the assets acquired
and liabilities assumed in the business combination

9. In accounting for business combinations, the gain on acquisition ( gain on a bargain purchase ) is

A. Amortized in profit or loss in the year of acquisition

B. Recognized in profit or loss in the year of acquisition

C. Recognized in profit or loss in the year of acquisition but only after reassessment of the assets
acquired and liabilities assumed in the business combination.
D. Either A or C, as an accounting policy choice

D. As an amount based on the number of equity interests the legal subsidiary (accounting acquirer)
would have had to issue to give owners of the legal parent (accounting acquiree) the same percentage
of equity interest in the combined entity that results from the reverse acquisition.

In accounting for reverse acquisitions, the consideration transferred is measured as an amount based on
the number of equity interests the legal subsidiary (accounting acquirer) would have had to issue to give
owners of the legal parent (accounting acquiree) the same percentage of equity interest in the
combined entity that results from the reverse acquisition.

10. In accounting for reverse acquisitions, the consideration transferred is measured

A. At cost rather than fair value

B. In a reverse fashion by squeezing upwards starting with goodwill

C. At nil

D. As an amount based on the number of equity interests the legal subsidiary (accounting acquirer)
would have had to issue to give owners of the legal parent (accounting acquiree) the same percentage
of equity interest in the combined entity that results from the reverse acquisition.

C. Total assets reported by the parent generally will be less than total assets reported on the
consolidated balance sheet.

Total assets reported by the parent generally will be less than total assets reported on the consolidated
balance sheet since 100% of the assets and liabilities of the subsidiary are included in the consolidated
financial statements regardless of the ownership of the parent of the subsidiary ( regardless 60% or
70% )

11. All of the following are false except

A. Goodwill represents the differences between the book value of the subsidiary's net assets and the
amount paid by the parent to buy ownership.
B. The non-controlling shareholder's claim of the subsidiary's net assets is based on the book value of
the subsidiary's net assets.

C. Total assets reported by the parent generally will be less than total assets reported on the
consolidated balance sheet.

D. Only the parent's portion of the difference between book value and fair value of the subsidiary's
assets is assigned to those assets.

A. The consolidated profits pertain only to the parent.

Consolidated profit or loss is attributed to the owners of the parent and NCI.

12. Which of the following is incorrect regarding consolidated financial statements?

A. The consolidated profits pertain only to the parent.

B. A parent is exempt from consolidation if it is in itself a subsidiary, its securities are not traded, and its
parent produces PFRS consolidated financial statements.

C. The subsidiary's equity is eliminated and replaced with non-controlling interest.

D. Consolidation involves adding similar assets, liabilities, income and expenses of the parent and its
subsidiaries.

13. C - Goodwill

Goodwill recorded by the acquiree prior to the business combination is excluded from identifiable assets
acquired because goodwill is unidentifiable. Only identifiable assets acquired are recognized.

13. When computing for the goodwill arising from a business combination, which of the following assets
of an acquiree may not be included?

A. Research and development costs charged as expenses

B. Capitalized kitchen utensils and equipment

C. Goodwill

D. Intangible assets not previously recognized

Additional Paid-in Capital or Share Premium, because the subisdiary's equity accounts are always
eliminated in the process of consolidation.

14. Which of the following accounts of an acquired company will not appear on a consolidated
statement of financial position?

A. Investments in marketable securities

B. Additional Paid-in Capital

C. Bond Discount

D. Intangible Assets

15. C. Decrease in Equity Investment

Dividends declared by a subsidiary, consequently dividends received by the parent from the investee or
subsidiary are disinvestments under the equity method, and they are recorded as decreases in the
investment account or equity investment.

15. Under the equity method, dividends declared by a subsidiary are accounted for by the parent as

A. Increase in Equity Income

B. Dividend Revenue

C. Decrease in Equity Investment

D. Decrease in Equity Investment, but only if it is a liquidating dividend