Deck 26: Share-Based Payment

Question 1

If shares are issued as part of the consideration paid, transactions costs such as brokerage fees may be incurred. According to IFRS 3, the appropriate accounting treatment for such costs in the records of the acquirer is a debit to:

A) share capital
B) investments
C) cash
D) acquisition expenses.

Answer 1

A

Question 2

Net employee benefit liabilities acquired in a business combination are measured by using the:

A) present value method
B) estimated total of future cash outflows, undiscounted
C) face value of the liabilities
D) cash method.

Answer 2

A

Question 3

Adjustments cannot be made subsequent to the initial accounting for:

A) Goodwill
B) Restructuring costs
C) Contingent consideration
D) Contingent liabilities

Answer 3

B

Question 4

The consideration transferred in a business combination is measured as the fair value of the:

A) net assets acquired
B) costs directly attributable to the combination
C) consideration given only
D) consideration given plus directly attributable costs.

Question 5

The following items are NOT deemed to be items that would meet the definition of an intangible asset given by IFRS 3:

A) trademarks
B) experienced marketing team
C) newspaper mastheads
D) order backlogs.

Question 6

A business combination is defined as:

A) A transaction in which an acquirer obtains control of an acquiree
B) A transaction in which one entity obtains control of one or more other entities
C) A transaction or other event in which an acquirer obtains control of one or more businesses
D) A transaction or other event in which an entity obtains control of one or more businesses

Question 7

Where the acquirer purchases assets and assumes liabilities of another entity it does NOT need to consider measurement of:

A) consideration transferred
B) fair values of identifiable net assets
C) carrying amounts of identifiable net assets
D) goodwill

Question 8

Bolton Limited acquires the net assets of Pamelia Limited for a cash consideration of $100 000. One half is to be paid on acquisition date and one half is payable in one year's time. The appropriate discount rate is 10% p.a. The present value of the cash outflow in one year's time is:

A) $45 454
B) $50 000
C) $54 545
D) $55 000

Question 9

Damon Limited acquired the net assets of Gina Limited. Damon Limited provided an item of equipment as part of the consideration. The fair value of the equipment was €13 000. It cost €20 000 and had a carrying amount of €12 000. Which of the following entries appropriately reflects the gain or loss on the equipment?

A) DR Loss on sale €1 000
B) CR Loss on sale €1 000
C) CR Gain on sale €1 000
D) Dr Gain on sale €1 000.

Question 10

In a business combination, the acquirer is the party that:

A) obtains control of the other entities
B) concedes control over the acquired entities
C) sells the acquired entity
D) receives the acquisition consideration.

Question 11

In a business combination, the acquiree is the party that:

A) finances the business combination
B) gives up control over the net assets acquired
C) obtains control of the net assets the other entity
D) pays the acquisition consideration.

Question 12

Oliveira Limited estimated that the net present value of future cash flows from Equipment acquired in a business combination is $15 000. The cost of replacing the Equipment is estimated to be $18 000. The Equipment has been independently appraised at a value of $14 000. A similar item of Equipment cost the acquirer $19 000 the previous year. The fair value at which the Equipment will be recognised when recording the business combination is:

A) $14 000
B) $15 000
C) $18 000
D) $19 000.

Question 13

Valdez Limited acquired a 25% interest in Alaska Pty Ltd on 1 January 2016. On 15 September 2016 it acquired an additional 10% interest, and on 15 March 2017 a further 40%. According to IFRS 3, a business combination occurs on:

A) 1 January 2016
B) 15 September 2016
C) 15 March 2017
D) All of the above

Question 14

Fredericks Limited acquired the identifiable assets and liabilities of Nicole Limited for €134 000. The items acquired, stated at fair value, are:
• Plant €72 000
• Inventory €40 000
• Trade receivables €18 000
• Patents €10 000
• Trade payables €16 000.

The difference on acquisition is:

A) Gain on bargain purchase €10 000
B) Gain on bargain purchase €16 000
C) Goodwill of €10 000
D) Goodwill of €124 000.

Question 15

IFRS 3 is relevant when accounting for a business combination that:

A) involves mutual entities
B) results in the formation of a joint venture
C) results in an entity acquiring the net assets of another entity
D) involves entities or businesses that are not investor owned

Question 16

Johnson Limited estimated the net present value of future cash flows from specialised Plant acquired under a business combination to be $30 000. A replacement cost for the Plant is estimated to be $33 000. The Plant has been independently appraised at a value of $31 000. A similar item of Plant cost the acquirer $29 000 the previous year. What is the fair value for recognition of the Plant under a business combination?

A) $29 000
B) $30 000
C) $33 000
D) $31 000.

Question 17

In order for a tangible asset to be recognised by an acquirer under a business combination it must be probable that future economic benefits will flow to the acquirer and:

A) its fair value can be measured reliably
B) it must be a non-current item
C) it must be measured using the present value method d, it may not be a non-monetary asset.

Question 18

According to IFRS 3, a gain on bargain purchase arises when the acquirer's interest in the fair value of the acquiree's identifiable assets and liabilities is:

A) less than the carrying amount of the net assets acquired
B) less than the consideration transferred
C) greater than the consideration transferred
D) more than the book values of the identifiable assets acquired.

Question 19

The acquisition date for a business combination is the date on which:

A) a substantive agreement between the combining parties is reached
B) the acquirer effectively obtains control of the acquiree
C) the business combination is announced to the public
D) the acquirer announces the acquisition to the acquiree.

Question 20

Appendix B of IFRS 3 requires disclosure of which of the following?
I details of contingent consideration
II the date of exchange
III carrying amounts of assets and liabilities in business combinations where shares are acquired
IV a qualitative description of the factors that make up goodwill

A) I, II and IV only
B) I, III and IV only
C) I, II and III only
D) I, II, III and IV

Question 21

When an acquirer accounts for a business combination they have to consider:
I.recognition of the identifiable assets acquired
II. measurement of the identifiable assets acquired
III. recognition of the liabilities assumed
IV. measurement of the liabilities assumed

A) I and II only
B) I, II, III and IV
C) I and III only
D) II and IV only

Question 22

The information contained within Appendix B of IFRS 3 in relation to disclosure:

A) is not mandatory, but contains optional additional disclosures
B) contains prescribed presentation formats for disclosure of business combinations
C) is an integral part of IFRS 3
D) is complementary to the main disclosure requirements within the body of IFRS 3

Question 23

Goodwill is measured as the difference between the:

A) cost of the assets given up, and the cost of the net assets acquired
B) cost of the net assets acquired, and the net present value of the consideration given up
C) present value of the consideration transferred, and the present value of the net assets acquired
D) consideration transferred, and the fair value of the assets and liabilities acquired

Question 24

Neil Limited sold a 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
• Trade receivables $4000.

When recording the sale, the acquiree recognises:

A) a gain on sale of $6000
B) goodwill of $6000
C) a gain on bargain purchase of $6000
D) a loss on sale of $6000

Question 25

Goodwill arising in a business combination is classified as:

A) an item in equity
B) a liability
C) an expense associated with the acquisition
D) an asset

Question 26

According to IFRS 3, the method of accounting for a business combination is the:

A) joint venture method
B) purchase method
C) market value method
D) acquisition method

Question 27

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 less transaction costs
C) consideration paid
D) fair value plus transaction costs

Question 28

When an acquiree disposes of a business, the gain or loss is recognised in:

A) retained earnings
B) revaluation surplus
C) the statement of profit or loss and other comprehensive income
D) capital profits

Question 29

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) its fair value can be measured reliably
C) it is a possible obligation and it is probable that it will occur
D) it is probable that an outflow of resources may occur in order to settle the obligation