QUIZ-2 - Sbbxhxjjxnsb PDF

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Tacurong City, Sultan Kudarat Angry Co. acquired 20% interest in Misery Co. many years ago. On January 1, 2019, Angry acquired additional 40% interest in Misery for P300,000. On this date, Misery’s net identifiable assets have a fair value of P690,000, and Angry’s previous investment in Misery has a...

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Notre Dame of Tacurong College Tacurong City, Sultan Kudarat

_____________________________________________________________________________________ 1. Angry Co. acquired 20% interest in Misery Co. many years ago. On January 1, 2019, Angry acquired additional 40% interest in Misery for P300,000. On this date, Misery’s net identifiable assets have a fair value of P690,000, and Angry’s previous investment in Misery has a carrying amount of P128,000 and fair value of P138,000. Angry opted to measure the NCI at proportionate share. How much is the goodwill? a. 24,000 b. 30,000 c. 34,000 d. 40,000 Consideration transferred Non-controlling interest in the acquiree (690K x 40%*) Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired Goodwill

300,000 276,000 138,000 714,000 (690,000) 24,000

*100% - (20% + 40%) = 40%

2. Which of the following transactions will most likely increase the share premium of the acquirer? a. A business combination achieved in stages b. A business combination accomplished through a mere exchange of equity interests between the acquirer and the acquiree’s former owners c. A business combination involving a contingent consideration that is classified as a liability d. A business combination where the acquirer reacquires a right that it has previously granted to the acquire 3. Business combinations achieved in stages are accounted for a. prospectively b. retrospective, as if the acquired entity has been a subsidiary all along c. retrospective if the previously held equity interest was classified as investment in associate d. b and d 4. The consideration transferred in a business combination will most likely include which of the following? a. The transaction price in an arrangement that is primarily for the benefit of the acquirer or the combined entity b. A contingent liability with an acquisition-date fair value but imposes an improbable outflow that the acquirer assumes in a business combination c. The “off-market” value of a reacquired right d. The acquisition-date fair value of a contingent consideration that is dependent upon the occurrence of a possible, but not probable, future event 5. Entity A obtains control over Entity B in a business combination. As a result, Entity A reacquires a right that it has previously granted to Entity B. Which of the following is correct? a. Entity A subsumes to goodwill the intangible asset for the reacquired right

Notre Dame of Tacurong College Tacurong City, Sultan Kudarat

_____________________________________________________________________________________ b. Entity A recognizes an intangible asset for the reacquired right at the “off-market” value of the reacquired right c. Entity A recognizes a settlement gain or loss depending on whether the terms of the contract is favorable or unfavorable, determined based on Entity B’s perspective when compared with market terms d. Entity A recognizes a settlement gain or loss measured at the lower of the settlement amount in the contract and the “off-market” value of the reacquired right 6. On January 1, 2019, Over Co. acquired 10,000 out of the 100,000 outstanding shares of Seas Co. for P30,000. Transaction costs on the acquisition amounted to P2,000. Over Co. classified the shares as held for trading. The shares were trading at P5 on December 31, 2019. On July 1, 2020, Over Co. acquired additional 50,000 shares of Seas Co. at P7 per share, the quoted price on that date. The outstanding shares of Seas Co. remained at 100,000 shares. Seas Co.’s net identifiable assets have a fair value of P665,000 as of this date. Over Co. elected to measure NCI using the proportionate share method. How much is the goodwill? a. 12,000 b. 18,000 c. 21,000 d. 31,000 Consideration transferred (50,000 sh. x ₱7) Non-controlling interest in the acquiree (665,000 x 40%*) Previously held equity interest in the acquiree** Total Fair value of net identifiable assets acquired Goodwill

350,000 266,000 70,000 686,000 (665,000) 21,000

* (10,000 + 50,000) ÷ 100,000 = 60% controlling interest; (100% - 60%) = 40% NCI ** (10,000 sh. x ₱7) = 70,000

7. On July 1, 2019, SUV Co. acquired all the identifiable assets and assumed all the liabilities of Pickup, Inc. for P800,000. At acquisition date, Pickup’s identifiable assets and liabilities have fair values of P1,200,000 and P300,000, respectively. Additional Information:  Pickup has an unrecognized intangible asset for secret processes. SUV Co. assigned a provisional amount of P200,000 for this asset because its fair value is not readily determinable on acquisition date. The provisional amount is included in the total valuation of the assets acquired. SUV amortized the intangible asset over an estimated useful life of 10 years using the straight line method.  On February 1, 2020, an independent consultant determined that the intangible asset’s fair value on acquisition date was P20,000 and that the useful life was 4 years. The entry to restate the goodwill includes which of the following?

a. Debit to goodwill for P180,000 b. Debit to intangible asset for P180,000 c. Debit to retained earnings for P100,000

Notre Dame of Tacurong College Tacurong City, Sultan Kudarat

_____________________________________________________________________________________ d. Credit to goodwill for P80,000 Consideration transferred NCI Previously held equity interest Total Fair value of net identifiable assets Goodwill (Negative goodwill) (a)

Provisional 800,000 800,000 (900,000) (100,000)

Adjusted 800,000 800,000 (720,000)(a) 80,000

(1.2M – 200K provisional amt. + 20K fair value - .3M)

Feb. 1, 20x2

Feb. 1, 20x2

Goodwill Retained earnings* Intangible asset Accumulated amortization Retained earnings

80,000 100,000 7,500

180,000 7,500

*This represents the reversal of the negative goodwill recognized in profit or loss in 20x1. **Amortization recognized in 20x1: (200,000 ÷ 10) x 6/12 = 10,000; Correct amortization in 20x1: (20,000 ÷ 4) x 6/12 = 2,500; Excess amortization expense in 20x1 = (10,000 – 2,500) = 7,500

8. After initial recognition, goodwill arising from a business combination is (use full PFRSs’) a. amortized over its useful life, not exceeding 10 years b. not amortized but tested for impairment at least annually c. amortized over its useful life, not exceeding 40 years d. amortized and tested for impairment 9. In a reverse acquisition, a. the issuer of shares is the accounting acquirer b. the legal acquirer is also the accounting acquirer c. the consideration transferred is liability rather than asset d. the legally acquired is the accounting acquirer 10. The costs of internally developed goodwill and the costs of maintaining a recognized goodwill are a. Capitalized as costs of goodwill b. Not capitalized but rather expensed when incurred c. Sometimes capitalized and sometimes expensed d. Ignored for accounting purposes 11. Entity A and Entity B exchanged equity interests in a business combination. Relevant information follows:  Entity A has 2,000 issued shares. To effect the business combination, Entity A will issue 2 new shares for each of the 3,000 total outstanding shares of Entity B  Entity A’s share have a fair value of P100 per share, while Entity B’s shares have fair value of P300 per share.  Entity A’s net identifiable assets have a fair value of P260,000 as at the acquisition date.

Notre Dame of Tacurong College Tacurong City, Sultan Kudarat

_____________________________________________________________________________________ How much is the goodwill?

a. b. c. d.

30,000 40,000 50,000 60,000 Legal form: Entity A issues shares to Entity B.

Entity A’s currently issued shares

2,000

Shares issued to Entity B (2 x 3,000) Total shares after the combination

6,000 8,000

25 % 75 %

Substance: Reverse – Entity B issues shares to Entity A Entity B’s currently issued shares

3,000

75%

Shares issued to Entity A (3,000 ÷ 75%) x 25%

1,000

25%

Total shares after the combination

4,000

Consideration transferred (1,000 sh. x ₱300) Non-controlling interest in the acquiree Previously held equity interest in the acquiree Total Fair value of Entity A’s net assets Goodwill

300,000 300,000 (260,000) 40,000

12. Frown Co. issued shares in exchange for all the outstanding shares of Long Co. Frown’s shares have a par value of P20 per share and fair value per share of P100. On acquisition date, Long’s net identifiable assets have a fair value of P4,000,000. Frown recognized goodwill of P200,000 from the business combination. How many shares did Frown issue on the business combination? a. 42,000 b. 45,000 c. 50,000 d. 52,000 Step 1 Consideration transferred (squeeze) Non-controlling interest in the acquiree Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (given) Goodwill (start)

4,200,000 4,200,000 (4,000,000) 200,000

Step 2 ₱4.2M consideration transferred ÷ ₱100 fair value per share = 42,000 shares issued

Notre Dame of Tacurong College Tacurong City, Sultan Kudarat

_____________________________________________________________________________________ 13. Nag Co. acquired 100% voting rights in Sag Co. by contract alone. No consideration was transferred on the arrangement. Sag’s net identifiable assets have a fair value of P1,800,000. Nag measured the NCI at proportionate share. How much is the goodwill? a. 0 b. 50,000 c. 60,000 d. 70,000 Consideration transferred Non-controlling interest in the acquiree (1.8M x 100%) Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired Goodwill

1,800,000 1,800,000 (1,800,000) -

14. The acquirer recognizes a settlement gain or loss if a pre-existing relationship with the acquire is settled due to the business combination. TRUE 15. A contingent consideration that is classified as equity is not adjusted for changes in fair value subsequent to initial recognition, except for changes in fair value that are measurement period adjustment. TRUE...