Chapter 08 - Multiple choice quiz

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.

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.

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.

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.

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.

The fair value of liabilities acquired in a business combination are best measured using the:

A.	liquidation value;

B.	market value;

C.	present value of future cash outflows;

D.	nominal value.

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.

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.

When accounting for a business combination any future costs associated with restructuring of an entity:

A.	should be estimated and included as part of the acquisition cost;

B.	should be provided for as part of the cost of the combination;

C.	should be capitalised and amortised across the restructuring period;

D.	should be 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.

Goodwill arising in a business combination is classified as:

A.	an item in equity;

an asset;

C.	a liability

D.	an expense associated with the acquisition.

12.

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.

13.

“The future economic benefits arising from assets that are not capable of being individually identified and separately recognised”, is the definition of:

revenue;

goodwill;

income;

D.	net assets.

14.

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.

15.

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:

$ nil;

$6 000;

$54 000;

$60 000;

16.

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:

Net assets acquired

$120 000

Consideration paid

$120 000

DR		Net assets acquired		$105 000
DR		Goodwill		$15 000

Consideration paid

$120 000

DR	Property	$70 000
DR	Equipment	$25 000
DR	Inventory	$10 000
DR	Goodwill	$15 000

Consideration paid

$120 000

DR	Property	$70 000
DR	Equipment	$25 000
DR	Inventory	$10 000

Consideration paid

$105 000

17.

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.

18.

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 $30 000, 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.

19.

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:

Liquidation

$35 000

Plant

$35 000

DR		Liquidation		$23 000
DR		Accumulated depreciation		$12 000

Plant

$35 000

Plant

$23 000

Liquidation

$23 000

DR		Plant		$23 000
DR		Accumulated depreciation		$12 000

Liquidation

$35 000

20.

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.

This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.