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CPA REVIEW SCHOOL OF THE PHILIPPINES Manila BUSINESS COMBINATION, CONSOLIDATION AND FOREIGN CURRENCY BUS. COM. - PFRS 3 (cpar) 1. It is a transaction or other event in which an acquirer obtains control of one or more businesses. A. Business combination B. Merger C. Consolidation D. Intercorporate di...

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CPA REVIEW SCHOOL OF THE PHILIPPINES Manila BUSINESS COMBINATION, CONSOLIDATION AND FOREIGN CURRENCY BUS. COM. - PFRS 3 (cpar) 1. It is a transaction or other event in which an acquirer obtains control of one or more businesses. A. Business combination B. Merger C. Consolidation D. Intercorporate directorship 2. This is defined as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return directly to investors or other owners, members or participants. A. Business B. Transaction C. Isolated event D. Undertaking 3.

Which of the following accounting methods must be applied to all business combinations? A. Pooling method B. Equity method C. Proportionate consolidation D. Acquisition method

4.

This is defined as “the entity that obtains control of the acquiree”. A. Acquirer B. Investor C. Parent D. Subsidiary

5.

It is the power to govern the financial and operating policies of an entity or business so as to obtain benefits from its activities. A. Significant influence B. Undue influence C. Control D. Managerial dependence

6.

An acquirer might obtain control of an acquire in all of the following, except A. By transferring cash, cash equivalents and other assets B. By issuing equity interests C. By contract alone, even without consideration D. By acquiring interest in a joint venture

7.

A business combination may be structured in all of the following, except A. One or more businesses become subsidiaries of an acquirer B. One entity transfers its net assets to another entity C. A group of former owners of one of the combining entities obtains control of the combined entity D. An entity acquires assets that are not a business.

8.

It is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the combination and the control is not transitory. A. Business combination involving entities under common control B. Business combination involving entities under diversified control C. Full business combination D. Business reorganization

9.

What is the term for the business combination where all combining entities transfer their net assets to a newly formed entity? A. True merger B. Legal merger C. “Roll up” or ”put together” transaction D. Spin off

10.

This is defined as holders of equity interest of investor-owned entities, or members and participants in mutual entities. A. Shareholders B. Investors C. Owners D. Participants

11.

The application of the acquisition method of accounting for a business combination requires all of the following (choose the incorrect one) A. Identifying the acquirer B. Determining the acquisition date C. Recognizing and measuring the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in acquiree. D. Not recognizing goodwill or gain from bargain purchase

12.

Which statement is incorrect concerning an acquirer? A. In a business combination effected by transferring cash or other assets, the acquirer is usually the entity that transfers the cash or other assets. B. In a business combination effected by issuing equity interest, the acquirer is usually the entity that issues the equity interest. C. The acquirer is usually the combining entity whose relative size is significantly greater than that of the combining entity or entities. D. If a new entity is formed to issue equity interests to effect a business combination, the new entity formed is necessarily the acquirer.

13.

The following statements relate to an acquisition date of a business combination. Which statement is incorrect? A. The acquisition date is the date on which an acquirer obtains control over the acquiree. B. The acquisition date is normally the “closing date”, meaning the date on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquire. C. Where several dates are key to a business combination, the date on which control passes is the acquisition date. D. The acquisition date can never precede the closing date.

14.

The following statements relate to recognition and measurement of a business combination. Which statement is correct? I. As of the acquisition date, the acquirer shall recognize, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. II. The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair value. A. I only B. II only C. Both I and II D. Neither I nor II

15.

A parent entity is acquiring a majority holding in an entity whose shares are dealt in on a recognized market. Under PFRS 3, which of the following measurement bases may be used in measuring the noncontrolling interest at the acquisition date? I. Fair value of the noncontrolling interest in the acquiree II. A proportionate share of the acquiree’s identifiable net assets. A. I only B. II only C. Both I and II D. Neither I nor II

16.

The consideration transferred in a business combination shall be measured at A. Fair value B. Carrying amount C. Fair value determined by the acquirer D. Transaction value

17.

An acquirer holds 30% equity interest in an acquiree and subsequently purchases another 25% equity interest in order to gain control. This transaction is known as A. Business combination of entities under common control B. Business combination achieved in stages C. Business combination by installment D. Step by step acquisition

18.

In a business combination achieved in stages, the acquirer shall A. Not remeasure the previously held equity interest. B. Remeasure the previously held interest at fair value with any resulting gain or loss included in profit or loss. C. Remeasure the previously held interest at fair value with any resulting gain or loss included in other comprehensive income. D. Remeasure the previously held interest at fair value with any resulting gain or loss included in retained earnings.

19.

In a business combination, goodwill is measured as the excess of A. The consideration transferred over the identifiable net assets acquired. B. The total of the consideration transferred and the amount of any noncontrolling interest in the acquiree over the identifiable net assets acquired. C. The total of the consideration received and the fair value of the previously held interest in the acquiree over the identifiable net assets acquired. D. The total consideration received, the amount of any noncontrolling interest in the acquiree and the fair value of previously held interest in the acquiree over the identifiable net assets acquired.

20.

In a business combination, any “gain on bargain purchase” shall A. Be recognized in profit or loss. B. Be recognized in other comprehensive income. C. Be recognized in retained earnings. D. Not be recognized.

21.

The acquisition-related costs in a business combination to be expensed immediately include all of the following, except A. Professional and consulting fees B. Finder’s fees C. Costs of maintaining an internal acquisition department D. Costs of issuing debt securities

(valix) 45-19 5. It is the equity in a subsidiary not attributable directly to a parent. A. Controlling interest B. Subsidiary interest C. Noncontrolling interest D. Residual interest

7.

The following statements relate to a contingent consideration in a business combination. Which statement is correct?

I - The acquirer shall recognize the acquisition-date fair value of any contingent consideration as part of the consideration transferred in a business combination. II - The acquirer shall not recognize the acquisition-date fair value of any contingent consideration as part of the consideration transferred in a business combination. A. I only B. II only C. Both I and II D. Neither I nor II 8.

The acquirer shall classify the obligation to pay the contingent consideration as A. Financial liability only B. Equity only C. Either financial liability or equity in accordance with PAS 32 D. Neither financial liability nor equity

9.

In the final settlement of the contingent consideration classified as equity, the amount A. Shall not be remeasured but instead recognized as part of equity. B. Shall be remeasured at fair value with any gain or loss included in profit or loss. C. Shall be remeasured at fair value with any gain or loss included in retained earnings. D. Shall be remeasured at fair value with any gain or loss included in other comprehensive income.

10.

In the final settlement of the contingent consideration classified as financial liability, the amount A. Shall not be remeasured. B. Shall be remeasured at fair value with any gain or loss included in profit or loss. C. Shall be remeasured at fair value with any gain or loss included in retained earnings. D. Shall be remeasured at fair value with any gain or loss included in other comprehensive income.

CONSOLIDATION- PAS 27

22.

Consolidated financial statements are I. The financial statements of a group presented as those of a single economic entity. II. Those presented by a parent, an investor in an associate, or a venture in jointly controlled entity, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investee. A. I only B. II only C. Both I and II D. Neither I nor II

23.

A “group” for consolidation purposes is A. A parent and all its subsidiaries.

B. An entity that has one or more subsidiaries. C. An entity, including an unincorporated entity such as partnership that is controlled by another entity. D. An entity that obtains control other entities or businesses. 24.

It is the entity that has one or more subsidiaries. A. Investor B. Parent C. Associate D. Affiliate

25.

It is the equity in a subsidiary not attributable directly or indirectly to a parent. A. Controlling interest B. Subsidiary interest C. Noncontrolling interest D. Residual interest

26.

Which of the following is not a valid condition that will exempt an entity from preparing consolidated financial statements? A. The parent entity is a wholly owned subsidiary of another entity. B. The parent entity’s debt or equity capital is not traded on the stock exchange. C. The ultimate parent entity produces consolidated financial statements available for public use that comply with PFRS. D. The parent entity is in the process of filing its financial statements with a securities commission.

27.

A subsidiary shall be excluded from consolidation when A. The investor is a venture capital organization, mutual fund, unit trust or similar entity. B. The business activities of the subsidiary are dissimilar from those of the other entities within the group. C. The subsidiary is acquired with the intention to dispose of it within twelve months from date of acquisition. D. The subsidiary is operating under severe long-term restrictions that significantly impair its ability to transfer funds to the parent.

28.

Which of the following subsidiaries should be deconsolidated? A. A subsidiary that has been previously excluded from consolidation and is not disposed of within the 12-month period. B. A subsidiary with severe restriction on the repatriation of dividends to the parent. C. Two subsidiaries located in one country that are individually immaterial but collectively material. D. None of the subsidiaries mentioned.

29.

Control is presumed to exist when the parent owns directly or indirectly through subsidiaries A. More than half of the equity of an entity. B. More than half of the ordinary shares of an entity.

C. More than half of the preference and ordinary shares of an entity D. More than half of the voting power of an entity. 30.

Control exists even if the parent owns half or less of the voting power of an entity where there is (choose the incorrect one) A. Power over more than half of the voting rights by virtue of an agreement with other investors. B. Power to govern the financial and operating policies of the entity under a statute or an agreement. C. Power to appoint or remove the key officers an employees of the entity. D. Power to cast the majority of votes at meetings of the board of directors or equivalent governing body.

31.

Noncontrolling interest shall be presented in the consolidated statement of financial position A. Separately from liabilities and the parent shareholders’ equity. B. Within equity, separately from the parent shareholders’ equity. C. As noncurrent liability D. As component of the parent shareholders’ equity

32.

When a parent loses control of a subsidiary, the investment in subsidiary retained by the investor A. Shall continue to be accounted for a investment in subsidiary B. Shall be accounted for an investment property C. Shall be accounted for in accordance with PAS 39 on the measurement of financial asset D. Shall be accounted for as nonmarketable equity security.

33.

What is the initial measurement of an investment in subsidiary retained by the investor when control is lost? A. Fair value at the date when control is lost B. Fair value at the beginning of the reporting period C. Carrying amount at the date when control is lost D. Carrying amount at the beginning of the reporting period

34.

When separate financial statements are prepared, investments in subsidiaries shall be accounted for at A. Cost B. In accordance with PAS 39 on measurement of financial asset C. Either at cost or in accordance with PAS 39 on measurement of financial asset D. Neither at cost nor in accordance with PAS 39 on measurement of financial asset

(valix) 46-16

3. The following statements relate to consolidated financial statements. Which statement is incorrect? A. A parent shall present consolidated financial statements in which it consolidates its investments in subsidiaries. B. Consolidated financial statements shall include all subsidiaries of the parent. C. A subsidiary is excluded from consolidation if the investor is a venture capital organization, mutual fund, unit trust or similar entity. D. A subsidiary is not excluded from consolidation even if its business activities are dissimilar from those of the other entities within the group. 4. A parent is not required to present consolidated financial statements under all of the following conditions, except A. When the parent is itself a wholly-owned subsidiary, or is partially-owned subsidiary and its owners do not object to the parent not presenting consolidated financial statements. B. When the parent’s debt and equity instruments are not traded in public market. C. When the parent has filed or it is in the process of filing its financial statements with SEC for the purpose of issuing any class of instruments in a public market. D. When the ultimate or any intermediate parent of the parent produces consolidated financial statements for public use that comply with PFRS. 6.

A parent loses control of a subsidiary (choose the incorrect one) A. When there is change in absolute or relative ownership level. B. When a subsidiary becomes subject to the control of a government, court, administrator or regulator. C. When the loss of control is the result of a contractual agreement. D. When the subsidiary is operating under severe long-term restrictions that impair its ability to transfer funds to the parent.

9.

If a parent loses control of a subsidiary (choose the incorrect one) A. The parent shall derecognize the assets and liabilities of the subsidiary at their carrying amounts. B. The parent shall not derecognize the carrying amount of any noncontrolling interest in the former subsidiary. C. Any gain or loss arising from the recognition shall be included in profit or loss. D. Any amounts that have been recognized in other comprehensive income in relation to the subsidiary shall be reclassified to profit or loss or retained earnings in accordance with relevant accounting standard.

11.

Where there is a change in a parent’s ownership interest in a subsidiary that does not result in a loss of control (choose the incorrect one) A. The change shall be accounted for as an equity transaction. B. The carrying amounts of the controlling and noncontrolling interests shall be adjusted to reflect the change in the level of ownership. C. Any difference between the consideration received and the amount of adjustment of the noncontrolling interest shall be recognized directly in equity.

D. Any difference between the consideration received and the amount of adjustment of the noncontrolling interests shall be recognized in other comprehensive income. 12.

Which is incorrect concerning the preparation of consolidated financial statements? A. The financial statements of the parent ant its subsidiaries shall be consolidated on a line by line basis by adding together like items of assets, liabilities, equity, income and expenses. B. Intragroup balances, transactions, income and expenses shall be eliminated in full. C. When the reporting dates of the parent and a subsidiary are different, the difference shall be no more than six months. D. Consolidated financial statements shall be prepared using uniform accounting policies for like transactions and other events in similar circumstances.

15.

Which is incorrect concerning the cost method of accounting? A. The investment is recognized at cost. B. The investor recognizes income from the investment only to the extent that the investor receives distributions from accumulated profits of the investee arising after the date of acquisition. C. Distributions received in excess of profits after acquisition are regarded as a recovery of investment and are recognized as a reduction of the cost of the investment. D. The investment is initially recorded at cost and any changes in value of the investment at each reporting date are recognized in profit or loss.

FOREIGN CURRENCY- PAS 21

35.

It is a subsidiary, associate, joint venture or branch of a reporting entity, the activities of which are based or conducted in a country or currency other than that of the reporting entity. A. Foreign entity B. Foreign operation C. Domestic operation D. Branch operation

36.

Exchange rate is A. The ratio of exchange for two currencies B. The spot exchange rate at the end of reporting period C. The exchange rate for immediate delivery D. The difference resulting from translating a given number of units of one currency into another currency at different exchange rates.

37.

Which statement is incorrect? A. Functional currency is the currency of the primary economic environment in which the entity operates. B. Foreign currency is a currency other than the functional currency of the entity. C. Presentation currency is the currency in which the financial statements are presented.

D. Net investment in a foreign operation is the amount of the reporting entity’s interest in the total assets of that operation. 38.

An entity started trading in country A, whose currency was the dollar. After several years the entity expanded and exported its product to country B, whose currency was the euro. The business was conducted through a subsidiary in country B. The subsidiary is essentially an extension of the entity’s o...