ADVANCED ACCOUNTING PART 2

Business Combination (Theory)

Instructions: Write the letter that best corresponds to your answer in the booklet that was
given to you. Do not write on the test questions and return it after use. Thank you and
GODBLESS!

1. A business combination can be effected through

a. Purchase of all of the assets and assumption of all of the liabilities of an acquiree
by the acquirer
b. Purchase of all or some of the voting shares of the acquiree, sufficient for the
acquirer to obtain control over the acquiree
c. Acquisition of control without transfer of consideration
d. Any of these
2. After this type of business combination, the acquired entity ceases to exist as a
separate legal or accounting entity. The acquirer records in its accounting records
the assets acquired and liabilities assumed in the business combination.
a. Stock acquisition
b. Acquisition of control without transfer of consideration
c. Combination of mutual entities
d. Asset acquisition
3. It is a statutory type of business combination which occurs when two or more
companies merge into one single entity which shall be one of the combining
companies.
a. Merger c. Stock acquisition
b. Consolidation d. Mutual combination
4. It is a statutory type of business combination which occurs when two or more
companies merge into a single entity which shall be the consolidated company.
a. Merger c. Stock acquisition
b. Consolidation d. Mutual combination
5. PFRS 3 requires a business combination to be accounted for using the
a. Purchase method c. Goodwill method
b. Acquisition method d. Control method
6. The acquisition method requires which of the following?
a. Identifying the acquirer
b. Determining the acquisition date
c. Recognizing and measuring the identifiable assets acquired, the liabilities
assumed and any non-controlling interest in the acquiree
d. Recognizing and measuring goodwill or gain from a bargain purchase
e. All of these
7. It refers to the entity that obtains control after the business combination.
a. Acquired c. Acquirer
b. Acquiree d. All of these
8. According to PFRS 3, this is the date on which the acquirer obtains control over the
acquiree.
a. Control date c. Acquisition date
b. Date of purchase d. Birthdate
9. According to PFRS 3, the acquisition date is normally the
a. Control date c. Closing date
b. Purchase date d. Valentine’s date
10. It is a business combination of two or more entities with similar business.
a. Vertical combination c. Similar combination
b. Identical combination d. Horizontal combination
11. The objective of PFRS 3 is
a. To lend credibility to the financial statements which the users will use in making
economic decisions in investing or lending in a business undergoing business
combination.

ADVANCED ACCOUNTING PART 2 – BUSINESS COMBINATION (PART 2) Page 1

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b. To give the users information who are not in the position to require the entity to
prepare financial statements in their tailored needs.
c. To improve relevance, reliability and comparability of the financial reporting of an
entity in relation to a business combination by establishing the recognition and
measurement principles and disclosure requirements.
d. To provide relevant and faithfully represented financial information which abide
with the fundamental qualitative characteristics that improves the proper
recognition, measurement and disclosure requirements in a business
combination.
e. None of these
12. Which of the following is not a disadvantage of a business combination?
a. Business combination brings monopoly in the market which may have a negative
impact in the society.
b. Management of the combined entity may become difficult due to incompatible
internal cultures, systems, and policies.
c. The combination will never result to business synergy.
d. All of the above are disadvantages of a business combination.
13. PFRS 3 applies to transactions that meet the definition of a business combination. It
does not apply to the following, which is the exception?
a. The formation of a joint venture.
b. A combination of entities or businesses under common control
c. A combination of two sole proprietorship business entities.
d. A combination of entities operating at different levels in a marketing chain.
14. It occurs when the collaboration of two or more entities results to greater
productivity than the sum of the productivity of each constituent working
independently.
a. Business combination c. Synergy
b. Cooperation d. Competition
15. ABC Co. acquires 51% ownership interest in XYZ, Inc.’s preference shares.
a. ABC is presumed to have obtained control over XYZ because it obtains more than
50%.
b. A 100% ownership is need for ABC to obtain control over XYZ.
c. It is non-determinable because it is not stated if what type of business
combination is made but base on the problem it may be assumed that the
combination ABC obtained control.
d. ABC does not obtain control over XYZ.

END OF EXAMINATION!

ADVANCED ACCOUNTING PART 2 – BUSINESS COMBINATION (PART 2) Page 2