Book Title; Author

Chapter 12 - Multiple choice quiz


1.
AASB 3 is relevant when accounting for a business combination that:
A.
involves mutual entities;
B.
results in the formation of a joint venture;
C.
involves entities or businesses that are not investor owned;
D.
results in an entity acquiring the net assets of another entity and the liquidation of the acquiree.


2.
The criterion used when determining the acquisition date for a business combination is the date:
A.
on which the consideration was paid by the acquirer;
B.
on which the consideration was received by the acquiree;
C.
control was achieved by the acquirer;
D.
on which specific assets are delivered to the acquirer.


3.
Under AASB 3 the method of accounting for a business combination is the:
A.
acquisition method;
B.
combination of net assets method;
C.
purchase method;
D.
market value method.


4.
Where the acquirer purchases assets and assumes liabilities of another entity it needs to consider the measurement of:
A.
the carrying amount of identifiable net assets
B.
the nominal amount of consideration transferred
C.
the fair value of goodwill
D.
the recoverable amount of contingent assets


5.
The best estimate of fair value of an item is determined by reference to the:
A.
observable prices of market transactions for identical assets or liabilities;
B.
estimated resale price of the item;
C.
expected liquidation value of the item;
D.
anticipated value in use of the item.


6.
When an acquirer purchases a business from another entity which of the following items must be measured at fair value?
 
I Consideration paid for the assets
II Consideration paid for the liabilities
III Consideration paid for the contingent liabilities
IV Consideration paid for the equity of the acquiree
A.
I and II only;
B.
I, II and III only;
C.
II and II only;
D.
II, II and IV only.


7.
The fair value of liabilities acquired in a business combination are best measured using the:
A.
liquidation value;
B.
market value method;
C.
present value of future cash outflows;
D.
nominal value.


8.
When accounting for a business combination any future losses or other costs expected to be incurred as a result of the combination are:
A.
ignored as they are not considered to be liabilities of the acquirer;
B.
expensed immediately;
C.
capitalised and amortised across the term of the liabilities;
D.
included in the purchase price of the business.


9.
When accounting for a business combination any future costs associated with restructuring of an entity should be:
A.
estimated and included as part of the acquisition cost;
B.
provided for as part of the cost of the combination;
C.
capitalised and amortised across the restructuring period;
D.
recognised only when the acquiree has an existing liability for restructuring.


10.
When accounting for a business combination a contingent liability is recognised if:
A.
it is a present obligation that has failed to meet the recognition criteria;
B.
it is a possible obligation and it is probable that it will occur;
C.
it is probable that an outflow of resources may occur in order to settle the obligation;
D.
its fair value can be measured reliably.


11.
So that an intangible asset may be recognised under a business combination, it is necessary that the following test be satisfied:
A.
the cash flows arising from use of the asset can be readily identified
B.
it is probable that the acquirer will realise future economic benefits
C.
fair value can be reliably measured
D.
the intangible asset can be separated from the acquiring entity and sold.


12.
Yang Limited estimated the expected benefits from an identifiable intangible asset acquired under a business combination to be $10 000. The probability of receiving these benefits was estimated to be 80%. Costs associated with the intangible assets that have been expensed by the acquiree in the current period amount to $9000. What is the amount of the fair value that should be recognised by the acquirer when recording this business combination?
A.
$8 000
B.
$9 000
C.
$10 000
D.
$17 000.


13.
The cost of acquisition in a business combination is measured as the fair value of the:
A.
Consideration given;
B.
Costs directly attributable to the combination;
C.
Consideration received;
D.
Consideration given plus directly attributable costs.


14.
If directly attributable costs are incurred as part of the cost of a business combination, the appropriate account to debit in the records of the acquiring company is:
A.
cash
B.
net assets acquired
C.
goodwill
D.
legal and other acquisition expenses.


15.
When measuring the fair value of cash and cash equivalents dispersed by the acquirer to a business combination, the amounts payable are:
A.
measured at their nominal value at the date of exchange
B.
discounted to their present value at the date of exchange
C.
compounded to recognise the time value of money
D.
valued at face value.


16.
Goodwill arising in a business combination is classified as:
A.
an item in equity;
B.
an asset;
C.
a liability
D.
an expense associated with the acquisition.


17.
Goodwill is measured as the difference between the:
A.
consideration given, and the fair value of the net assets and contingent liabilities acquired;
B.
cost of the assets given up, and the cost of the net assets acquired;
C.
cost of the net assets acquired, and the net present value of the consideration given up;
D.
present value of the acquisition consideration, and the present value of the net assets acquired.


18.
“The future economic benefits arising from assets that are not capable of being individually identified and separately recognised”, is the definition of:
A.
revenue;
B.
goodwill;
C.
income;
D.
net assets.


19.
Subsequent to recognition in a business combination goodwill is measured at:
A.
cost less accumulated amortisation;
B.
revalued amount;
C.
fair value;
D.
cost less accumulated impairment losses.


20.
Joe Limited acquired the following net assets of Judith Limited: Property $25 000, Inventory $18 000, Accounts receivable $14 000; Accounts payable $3 000. All items are stated at fair value. The consideration given was $ 60 000. The amount of goodwill acquired was:
A.
Nil
B.
$6 000
C.
$ 54 000
D.
$ 60 000


21.
Waterworld Limited acquired the net assets of Pooltime Limited for $120 000. The fair value of the net assets acquired was: Property $70 000, Equipment $25 000, Inventory $10 000. The journal entry to record the business combination is:
A.
DR     Net assets acquired               $120 000
    CR          Consideration paid                    $120 000;
B.
DR     Net assets acquired               $105 000
DR     Goodwill                                $15 000
    CR          Consideration paid                    $120 000;
C.
DR     Property                               $ 70 000
DR     Equipment                            $ 25 000
DR     Inventory                              $ 10 000
DR     Goodwill                               $ 15 000
    CR          Consideration paid                    $120 000;
D.
DR     Property                               $ 70 000
DR     Equipment                            $ 25 000
DR     Inventory                             $ 10 000
    CR          Consideration paid                    $105 000.


22.
Jane Limited acquired the net assets and contingent liabilities of Yong Limited for a purchase consideration of $30,000. Yong Limited's net assets and contingent liabilities were: Total assets $42,000; Total liabilities $5,000; Contingent liabilities $6,000. Jane Limited will record:
A.
goodwill of $1,000;
B.
gain on bargain purchase of $1,000;
C.
goodwill of $7 000;
D.
gain on bargain purchase of $30,000.


23.
Wickreme Limited acquired the net assets and contingent liabilities of Manilla Limited for a purchase consideration of $300 000. Manilla Limited's net assets and contingent liabilities at fair value were: Total assets $420 000 Total liabilities $150 000 Contingent liabilities $50 000. The amount of goodwill to be recognised by Wickreme Limited when recording the business combination is:
A.
$80 000
B.
$130 000
C.
$200 000
D.
$220 000.


24.
Where an entity acquires shares rather than the net assets of another entity the acquirer records the shares at:
A.
fair value
B.
fair value plus transaction costs
C.
fair value less transaction costs
D.
consideration paid


25.
Neil Limited sold his business to Howell Limited for $60 000. All assets were recorded by the acquiree at their fair values as follows: Land $30 00, Inventory $20 000; Accounts receivable $4 000. When recording the sale, the acquiree recognises:
A.
goodwill of $6 000;
B.
a gain on bargain purchase of $6 000;
C.
a loss on sale of $6 000;
D.
a gain on sale of $6 000.


26.
The owners of Holder Limited sold the business to Taker Limited. At acquisition date the business had a Plant asset which cost $35 000 and had accumulated depreciation of $12 000. The liquidation journal entry is:
A.
DR     Liquidation                                $35 000
    CR          Plant                                            $35 000;
B.
DR     Liquidation                                $23 000
DR     Accumulated depreciation            $12 000
    CR          Plant                                             $35 000;
C.
DR     Plant                                         $23 000
    CR          Liquidation                                    $23 000;
D.
DR     Plant                                          $23 000
DR     Accumulated depreciation              $12 000
    CR          Liquidation                                    $35 000.


27.
Where a group of assets are held for sale by an entity, the entity must measure those assets using:
A.
replacement price;
B.
the lower of carrying amount and fair value less disposal costs;
C.
the lower of cost or market value;
D.
discounted cash flows.


28.
Subsequent to acquisition date contingent liabilities are measured at:
A.
the amount that would be recorded in accordance with AASB 137
B.
the amount initially recorded less cumulative amortisation recognised in accordance with AASB 118
C.
the higher of A and B
D.
the lower of A and B


29.
Which of the following statements in relation to contingent consideration is not correct?
A.
At acquisition date contingent consideration is measured at fair value
B.
Where the contingent consideration is classified as equity there is no remeasurement required on settlement
C.
Subsequent adjustments to contingent consideration affect the goodwill calculated at acquisition date.
D.
Changes in the amount of an expected cashflow where the contingent consideration represents a liability that is within the scope of AASB 137 are accounted for through profit and loss.


30.
The information contained within Appendix B of AASB 3 in relation to disclosure:
A.
is an integral part of AASB 3
B.
is not mandatory, but contains optional additional disclosures
C.
contains prescribed presentation formats for disclosure of business combinations
D.
is complementary to the main disclosure requirements within the body of AASB 3



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