BUSINESS

COMBINATION
REVIEW PROBLEMS
An entity shall account for each business combination by applying:

A. Purchase method only

B. Acquisition method only
C. Pooling of interest method only
D. Goodwill method only
In the final settlement of the contingent consideration classified as
equity, the amount:

A. Shall be remeasured at fair value with any gain or loss included in

other comprehensive income.
B. Shall not be remeasured but instead recognized as part of equity.
C. Shall be remeasured at fair value with any gain or loss included in
profit or loss.
D. Shall be remeasured at fair value with any gain or loss included in
retained earnings.
How shall an acquirer in a business combination account for the changes in fair value
contingent consideration classified as financial liability if the changes resulted from events
after the acquisition date, such as meeting an earnings target, meeting a target share price, or
reaching a milestone in a research and development project?

A. The changes in fair value of contingent consideration classified as financial liability shall be
recognized as gain or loss in profit or loss because they are not measurement period
adjustments.
B. The changes in fair value of contingent consideration classified as financial liability shall be
retroactively adjusted to goodwill/gain on bargain purchase because they are measurement
period adjustments.
C. The changes in fair value of contingent consideration classified as financial liability shall be
retrospectively restated to beginning retained earnings because they are prior period errors.
D. The changes in fair value of contingent consideration classified as financial liability shall be
retroactively applied to beginning retained earnings because they are changes in accounting
policy.
If the aggregate of the (a) consideration transferred measured in accordance
with this IFRS, which generally requires acquisition-date fair value; (b) the
amount of any non-controlling interest in the acquiree measured in
accordance with IFRS 3; and (c) in a business combination achieved in
stages, the acquisition-date fair value of the acquirer’s previously held
equity interest in the acquiree is less than the net of the acquisition-date
amounts of the identifiable assets acquired and the liabilities assumed
measured in accordance with IFRS 3, the difference shall be classified as

A. Goodwill to be presented as noncurrent asset.

B. Gain on bargain purchase to be presented as part of profit or loss.
C. Gain on acquisition to be presented as part of OCI.
D. Share premium from issuance of shares.
In a business combination achieved in stages (step acquisition), the acquirer
shall:
I. Remeasure the previously held interest at fair value with the resulting gain or
loss included in retained earnings.
II. Remeasure the previously held interest at fair value with the resulting gain
or loss included in profit or loss.
III. Remeasure the previously held interest at fair value with the resulting gain
or loss included in other comprehensive income.

A. I and II
B. I and III
C. II and III
D. I, II, and III
In an asset acquisition:

A. A consolidation must be prepared whenever financial statements are

issued.
B. The acquiring company deals only with existing shareholders, not the
company itself.
C. The assets and liabilities are recorded by the acquiring company at
their book values.
D. Statements for the single combined entity are produced
automatically and no consolidation process is needed.
In stock acquisition resulting in a parent company — subsidiary
relationship, differences between current fair values and book values of
the subsidiary's identifiable net assets on the date of acquisition are:

A. Disregarded.
B. Entered in the accounting records of the subsidiary.
C. Accounted for in appropriately titled ledger accounts in the parent
company's accounting records.
D. Provided in a working paper elimination.
Working paper eliminations are entered in:

A. Both the parent company's and the subsidiary's accounting record.

B. Neither the parent company's nor the subsidiary's accounting
records.
C. The parent company's accounting records only.
D. The subsidiary's accounting records only.
How is the non-controlling interest treated in the consolidated balance
sheet?

A. It is included in long-term liabilities.

B. It appears between the liability and equity sections of the balance
sheet.
C. It is included in total as a component of shareholders' equity.
D. It is included in shareholders' equity and broken down into par, paid-
in capital in excess of par, and retained earnings.
A parent buys 32 percent of a subsidiary in one year and then buys an
additional 40 percent in the next year. In a step acquisition of this type,
the original 32 percent acquisition should be:

A. maintained at its initial value.

B. adjusted to its equity method balance at the date of the second
acquisition.
C. adjusted to fair value at the date of the second acquisition with a
resulting gain or loss recorded.
D. adjusted to fair value at the date of the second acquisition with a
resulting adjustment to additional paid-in capital.
Which of the following are required under PAS 27 to produce separate
financial statements?

A. A listed entity with at least one wholly owned subsidiary.

B. A listed entity with at least one subsidiary, whether wholly or
partially owned.
C. An entity, whether listed or unlisted, with at least one affiliate (e.g., a
subsidiary, an associate or an interest in a joint venture).
D. PAS 27 does not mandate which entities should produce separate
financial statements.
Polly Company acquires a controlling interest in Seve Company
in the open market for P240,000. The P100 par value capital
stock of Seve Company at the date of acquisition is P250,000
and its retained earnings amounts to P100,000. The market
value per share of Seve Company is P120 per share. In the
consolidated statement of financial position on the date of
acquisition, NCI would show a balance of:
All the issued and outstanding ordinary share of Puma were bought by Mapu Co. on December 1,
2020 for P42,000,000. The assets and liabilities of Pinoy were:
Cash 3,000,000
Accounts Receivables (net of 1.5M allowance for doubtful account) 15,000,000
Inventory 9,000,000
Equipment (net of 6,000,000 accumulated depreciation) 18,000,000
Accounts Payable 7,800,000

On December 1, 2020 the fair value of the following assets were as follows:
Accounts Receivable (net) 14,100,000
Inventory 7,800,000
Equipment (net) 24,000,000

In November 15, 2020, Puma announced its decision to close down a small workshop with the
loss of some jobs. The cost of closure is estimated at P1,200,000. No provision has been made at
December 1, 2020.
The amount of goodwill recorded in the books of Mapu as a result of business combination is:
The Statement of Financial Position of Lancelot Corporation on June 30, 2024 is presented below:
Current assets P 292,500
Land 1,980,000
Building 990,000
Equipment 787,500
Total assets P 4,050,000

Liabilities 787,500
Ordinary shares, P5 par 1,350,000
Share premium 1,237,500
Retained earnings 675,000
Total equities P4,050,000

All the assets and liabilities of Lancelot assumed to approximate their fair values except for land and building. It is estimated
that the land has a fair value of P3,150,000 and the fair value of the building increased by P720,000. Odette acquired 80% of
Lancelot’s outstanding shares for P4,500,000. The non-controlling interest is measured at fair value.
Assuming the consideration paid (P4,500,000) includes a control premium of P1,278,000, how much is the goodwill / (gain on
acquisition) on the consolidated financial statement?
Penny Corporation acquired majority of the stock of Sunny Company on January 2, 2024 and a consolidated balance was prepared. Partial
balance sheet for Penny, Sunny, and the consolidated entity follow: (The non- controlling interest is measure at NCI’s proportionate share
in the acquiree’s net identifiable assets)
Penny Corporation and Sunny Company
Partial Balance Sheet Data
January 2, 2024
Accounts Primo Sonia Consolidated
Cash and cash equivalents P300,000 P120,000 P420,000
Accounts receivable 240,000 60,000 300,000
Inventory 600,000 300,000 1,020,000
Equipment 1,500,000 600,000 2,400,000
Investment in Sonia Company ? ?

Goodwill 30,000
Total P ? . P1,080,000 P4,170,000

Accounts payable P210,000 P 120,000 P330,000

Bonds payable 900,000 900,000
Common stock ? 450,000 750,000
Retained earnings 1,701,000 510,000 ?
NCI 489,000
Total P ? . P1,080,000 P4,170,000

What amount did Penny pay to acquire the stock on January 2, 2024?
STEP-ACQUISITION
PP Company acquires 15 percent of SS Company’s common
stock for P500,000 cash and carries the investment as a
financial asset. A few months later, PP purchases another 60
percent of SS Company’s stock for P2,160,000. At that date, SS
Company reports identifiable assets with a book value of
P3,900,000 and a fair value of P5,100,000, and it has liabilities
with a book value and fair value of P1,900,000. The fair value
of the 25% non-controlling interest in SS Company is
P900,000.
How much is the goodwill or gain on acquisition?