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Chapter 2
Business Combinations (Part 2)

Name: Date:
Instructor: Score:

QUIZ 1:

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. A+B+C-D c. (A+C) – (D x %)
b. A – (D x %) d. (A+B) – [(D x %) – B]

2. 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. Recognition of such contingent liabilities will
a. Decrease the value attributed to goodwill, thus decreasing the risk of impairment of
goodwill.
b. Decrease the value attributed to goodwill, thus increasing the risk of impairment of
goodwill.
c. Increase the value attributed to goodwill, thus decreasing the risk of impairment of
goodwill.
d. Increase the value attributed to goodwill, thus increasing the risk of impairment of goodwill.

3. Are the following statements about an acquisition true or false, according to PFRS 3 Business
combinations?
I. The acquirer should recognize the acquiree's contingent liabilities if certain conditions are
met.
II. The acquirer should recognize the acquiree's contingent assets if certain conditions are met.
a. False, False b. False, True c. True, False d. True, True

4. An acquirer should at the acquisition date recognize goodwill acquired in a business

combination as an asset. Goodwill should be accounted for as follows:
a. Recognize as an intangible asset and amortize over its useful life.
b. Write off against retained earnings.
c. Recognize as an intangible asset and impairment test when a trigger event occurs.
d. Recognize as an intangible asset and annually impairment test (or more frequently if
impairment is indicated).
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5. On September 1, 20x1, TEPID Co. acquired LUKEWARM Co. in a business combination that
resulted to goodwill. By December 31, 20x1, the initial allocation of goodwill is not yet
completed. According to PAS 36, TEPID should
a. complete the initial allocation before the end of December 31, 20x1.
b. complete the initial allocation before the end of December 31, 20x2.
c. complete the initial allocation before the end of November 30, 20x1.
d. complete the initial allocation before the end of September 1, 20x2.

6. On September 1, 20x1, TEPID Co. acquired LUKEWARM Co. in a business combination that
resulted to goodwill. By December 31, 20x1, the initial allocation of goodwill is not yet
completed. According to PAS 36, TEPID should
a. complete the initial allocation before the end of December 31, 20x1.
b. complete the initial allocation before the end of December 31, 20x2.
c. complete the initial allocation before the end of November 30, 20x1.
d. complete the initial allocation before the end of September 1, 20x2.

7. Which of the following methods must be applied in accounting for business combinations under
PFRS 3?
a. acquirer method c. purchase method
b. acquisition method d. pooling of interest

8. The company that obtains control over another company in a business combination transaction
is referred to as the
a. acquirer c. subsidiary
b. parent d. a and b

9. According to PFRS 3, which of the following transaction costs would increase the amount of
goodwill from a business combination?
a. legal fees, accounting fees and similar costs
b. issuance costs of equity securities
c. issuance costs of debt instruments
d. none of these

10. This refers to 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.
a. Contingent liability
b. Contingent asset
c. Contingent consideration
d. Additional compensation

“For where you have envy and selfish ambition, there you find disorder and every evil practice.” – (James 3:16)
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Name: Pearly Jean M. Apurador Date: 10/26/2022

Instructor: Mr. Jorge B. Lunzaga Jr. Score:

QUIZ 2:
1. On January 1, 2022, CIVIL Inc., and UNION, Co. entered into a business combination effected
through exchange of equity instruments. The combination resulted to CIVIL obtaining 100%
interest in UNION. Both of the combining entities are publicly listed. As of this date, CIVIL’s
shares have a quoted price of ₱300 per share. CIVIL Inc. recognized goodwill of ₱900,000 on the
business combination. No acquisition-related costs were incurred. Additional selected
information at acquisition date is shown below:

CIVIL Inc.. Combined entity

(prior acquisition) (post acquisition)
Share capital 1,800,000 2,000,000
Share premium 900,000 2,700,000
Totals 2,700,000 4,700,000

Requirements: Compute for the following:

a. Number of shares issued by CIVIL Inc.. in the business combination. P6,666.67 or P6,666
b. Par value per share of the shares issued. P30
c. Acquisition-date fair value of the net identifiable assets of UNION. P1,100,000

2. On January 1, 202, PIOUS Co. acquired 30% ownership interest in ADAMANT, Inc. for ₱500,000.
Because the investment gave PIOUS significant influence over ADAMANT, the investment was
accounted for under the equity method in accordance with PAS 28.

From 2021 to the end of 2023, PIOUS recognized ₱400,000 net share in the profits of the associate and
₱20,000 share in dividends. Therefore, the carrying amount of the investment in associate account on
January 1, 2023, is ₱580,000.

On January 1, 2024, PIOUS acquired additional 60% ownership interest in ADAMANT, Inc. for
₱1,900,000. As of this date, PIOUS has identified the following:
a. The previously held 30% interest has a fair value of ₱660,000.
b. ADAMANT’s net identifiable assets have a fair value of ₱2,300,000.
c. PIOUS elected to measure non-controlling interests at the non-controlling interest’s
proportionate share of STUBBORN’s identifiable net assets.

Requirement: Compute for the goodwill. Goodwill = P490,000

3. LOUD Co. and EMPHATIC, Inc. both engage in the same business. On January 1, 2022, LOUD
and EMPHATIC signed a contract, the terms of which resulted in LOUD obtaining control over
EMPHATIC without any transfer of consideration between the parties.

The fair value of the identifiable net assets of EMPHATIC, Inc. on January 1, 2021 is ₱5,000,000.
EMPHATIC chose to measure non-controlling interest at the non-controlling interest’s proportionate
share of the acquiree’s identifiable net assets.
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Requirement: Compute for the goodwill. Goodwill = 0

4. On January 1, 2021, SECRETIVE Co. acquired all of the identifiable assets and assumed all of the
liabilities of APPARENT, Inc. by paying cash of ₱7,000,000. On this date, the identifiable assets
acquired and liabilities assumed have fair values of ₱8,200,000 and ₱6,800,000, respectively.

Additional information:
In addition to the business combination transaction, the following have also transcribed during the
negotiation period:

a. After the business combination, APPARENT will enter into liquidation and SECRETIVE agreed
to reimburse APPARENT for liquidation costs estimated at ₱40,000.
b. SECRETIVE agreed to reimburse APPARENT for the appraisal fee of a building included in the
identifiable assets acquired. The agreed reimbursement is ₱70,000.
c. SECRETIVE entered into an agreement to retain the top management of APPARENT for
continuing employment. On acquisition date, SECRETIVE agreed to pay the key employees
signing bonuses totaling ₱500,000.
d. To persuade, MS. BAN KO, the previous major shareholder of APPARENT, to sell her major
holdings to SECRETIVE, SECRETIVE agreed to pay an additional ₱400,000 directly to MS. BAN
KO.
e. Included in the valuation of identifiable assets are inventories with fair value of ₱480,000. MR.
Modes Ty, a former major shareholder of APPARENT, shall acquire title to the goods.

Requirement: Compute for the goodwill (gain on bargain purchase).

Goodwill = P6,480,000

“Peacemakers who sow in peace reap a harvest of righteousness.” – (James 3:18)

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