SAN SEBASTIAN COLLEGE – CANLUBANG
ADVANCED FINANCIAL ACCOUNTING AND REPORTING - 2
INSTRUCTIONS: PROVIDE WHAT IS REQURIED.
1. Given the following information, how is goodwill from a business combination computed
under PFRS 3?
A = Consideration transferred
B = Non-controlling interest in net assets of subsidiary
C = Previously held equity interest
D = Fair value of net identifiable assets of subsidiary
% = Percentage of ownership acquired by the parent in the subsidiary
A+B+C-D
2. On October 1, 2019, Gastro Corporation acquired Dengue Corporation in a business
combination that resulted to goodwill. By December 31, 2019, the initial allocation of goodwill
is not yet completed. How do Gastro Corporation treat these transactions based on PAS 36?
COMPLETE THE INITIAL ALLOCATION BEFORE THE END OF DECEMBER 31, 2020.
3. An acquirer should at the acquisition date recognize goodwill acquired in a business
combination as an asset. How should the Goodwill should be accounted for?
RECOGNIZE AS AN INTANGIBLE ASSET AND ANNUALLY IMPAIRMENT TEST (OR MORE FREQUENTLY IF
IMPAIRMENT IS INDICATED).
4. PFRS 3 requires that the contingent liabilities of the acquired entity should be recognized in
the balance sheet at fair value. The existence of contingent liabilities is often reflected in a
lower purchase price. How is the contingent liabilities will be recognized?
INCREASE THE VALUE ATTRIBUTED TO GOODWILL, THUS INCREASING THE RISK OF IMPAIRMENT OF
GOODWILL.
5. What method must be applied in accounting for business combinations under PFRS 3?
ACQUISITION METHOD
6. The costs of issuing equity securities in a business combination are
TREATED AS DIRECT REDUCTION IN EQUITY
7. What is the additional consideration for a business combination to be given to the acquiree
upon the happening of a contingency which is pre-agreed at the acquisition date?
CONTINGENT CONSIDERATION
8. In a business combination accounted for under the acquisition method, the fair value of the
net identifiable assets acquired exceeded the consideration transferred. How should the
excess fair value be reported?
AS NEGATIVE GOODWILL, RECOGNIZED IN PROFIT OR LOSS IN THE PERIOD THE BUSINESS COMBINATION
OCCURRED.
9. The costs of issuing debt securities in a business combination are
INCLUDED IN THE INITIAL MEASUREMENT OF THE DEBT SECURITIES ISSUED AND ACCOUNTED FOR LIKE A
“DISCOUNT” ON LIABILITY
10. In a business combination, how should long-term debt of the acquired company generally be
recognized on acquisition date?
FAIR VALUE
11. A business combination is accounted for properly as an acquisition. Direct costs of
combination, other than registration and issuance costs of equity securities, should be:
DEDUCTED IN DETERMINING THE NET INCOME OF THE COMBINED CORPORATION FOR THE PERIOD IN
WHICH THE COSTS WERE INCURRED.
12. Goodwill may be capitalized
ONLY WHEN IT ARISES IN A BUSINESS COMBINATION.
13. What factor is used as multiplier of super profits in valuation of goodwill of a business?
NUMBER OF YEARS’ PURCHASE
14. What type of business combination occurs when, a private entity decides to have itself
“acquired” by a smaller public entity in order to obtain a stock exchange listing?
REVERSE ACQUISITION
15. The company that obtains control over another company in a business combination
transaction is referred to as the?
ACQUIRER AND PARENT
