QUIZ BEE

O8.05.2018
EASY ROUND
1. Palawan Co. acquired the assets and liabilities Sulu Co. by paying
cash. On that date, Sulu Co., fair value of plant assets were at
provisional values. A month after the final value of the plant assets
was determined at P50,000 more than the provisional value.
Palawan Co. will record the final value as
a. Increase in Plant Assets and increase in Goodwill
b. Increase in Goodwill and decrease in Plant Assets
c. Increase in Plant Assets and decrease in Goodwill
d. Decrease in Plant Assets and decrease in Goodwill
ANSWER
Increase in Plant Assets and decrease in Goodwill
2. The following costs should be included in the consideration
transferred in a business combination according to PFRS 3
(1) Costs of maintaining an acquisitions department
(2) Fees paid to accountants to effect the combination

Costs (1) Costs(2) Costs (1) Costs(2)

a. NO NO c. YES YES
b. NO YES d. YES NO
ANSWER
NO , NO
3. Acquisition Company purchased the net assets of Seller Company for P80,000.
On the date of Acquisition’s purchase, Seller had no long-term investments in
marketable equity securities but had P10,000 of liabilities. The current fair values of
Seller Company’s assets, when acquired, were:

Current Assets P40,000

Noncurrent Assets 60,000
Total Current Fair Value P100,000

Which of the following is not correct relative to the difference between the current
fair value of the net assets acquired and the consideration transferred?
a. The difference should be credited to the profit or loss.
b. The noncurrent assets should be decreased for the difference
c. The difference is gain on bargain purchase
d. A negative goodwill resulted from the combination
ANSWER
1. B Consideration transferred P80,000
Fair market value of net assets acquired 90,000
Gain on Bargain Purchase/Negative
Goodwill P10,000
4. PFRS 3 requires that all business combinations be accounted for
using
a. Acquisition Method
b. Pooling of interests method
c. Both acquisition and pooling of interests method
d. Neither acquisition nor pooling of interests method
ANSWER
Acquisition Method
5. Daluyong Co. acquired Masuyo Co on May 15, 2014. Among the
assets of Masuyo Co., on this date are the following intangibles:
1.Customer list with a determined fair value of P90,000
2.Identifiable Research and Development of P220,000
3. Operating lease with remaining contract for 8 years whose
favorable terms have a present value of P25,000
4. Patent on a product that is deemed to have no useful life,
P30,000.
The acquisition resulted in the acquired intangible asset of:
a. P220,000 c. P335,000
b. P245,000 d. P365,000
ANSWER
 Customers Lists P 90,000
C
Research and Development 220,000
Operating Lease 25,000
Goodwill P335,000
6. Gain in bargain purchase in a combination should be
a. Offset against goodwill of the acquiring company
b. Credited to the acquiring company’s Additional Paid in Capital
account
c. Credited to the acquiring company’s Profit or Loss Account
d. Credited to a Deferred Credit account
ANSWER
Credited to the acquiring company’s Profit or
Loss Account
7. Pattern Co. acquired Sotto Co on September 5, 2014. At that time an
existing patent was not recorded as a separately identified intangible asset.
On December 31, 2015, the patent is valued at P55,000, while goodwill has
a book value of P203,000.

Under IFRS3, how should the assets be reported as of December 31, 2015?
a. Patent – 0 , Goodwill- 0 c. Patent -55,000, Goodwill – 0
b. Patent – 0, Goodwill – 203,000 d.Patent-55,000, Goodwill-203,000
ANSWER
Patent – 0, Goodwill – 203,000
8. Generally, the Retained Earnings account of the acquiring company in a
business combination is
a. To be debited
b. To be credited
c. To be debited and credited
d. Neither debited nor credited
ANSWER
Neither debited nor credited
9. Pine Co. acquired the net assets of Rose Co. on September 5, 2014 by
paying cash, issuing share capital and a cash contingency of P100,000
which has a 50% probability. On December 1, 2014 because of improved
information about facts and circumstances that existed on the acquisition
date, the contingent consideration was revised to an expected value of
P80,000. The adjustment to Goodwill and Estimated Liability for contingent
consideration is
a. P30,000 c.P80,000
b. P50,000 d.P100,000
ANSWER
80,000-50,000= 30,000
10. Which of the following is NOT included in the cost of an acquired
company?
a. Finder’s fee for arranging the combination
b. Contingent Consideration determinable at the consummation date of
the combination
c. Costs of registering and issuing debt securities to the shareholders of
the combined entities
d. Provisional values determined within the measurement period.
ANSWER
Finder’s fee for arranging the combination
moderATE ROUND
1. Dolphin Inc. and Elmo Co. agreed to combine. Dolphin buys the net assets of Elmo for P2,650,000. The
condensed statement of financial position of Elmo Co., prior to combination shows:
Current Assets P1,830,000
Plant and Equipment 2,760,000
Goodwill 300,000
Total Assets 4,890,000

Liabilities P1,140,000
Ordinary Share Capital 2,400,000
Additional Paid in Capital 780,000
Retained Earnings 570,000
Total Liabilities and Equity 4,890,000
An appraisal indicated that the fair value of Elmo’s assets are P1,890,000 for current assets and P2,900,000
for the plant and equipment. Direct cost of acquisition were P5,000. How should the difference between the
consideration paid by Dolphin and the fair value of Elmo’s assets be taken up in the books of Dolphin?
a. Reduction of plant and equipment to P1,900,000
b. Negative goodwill of P995,000
c. Credit to Profit and Loss of P1,000,000
d. Deferred Credit of P1,000,000
ANSWER
 Consideration transferred P2,650,000
C
FMV of net assets
(P1,890,000 + P2,900,000 – P1,140,000) 3,650,000
Credit to profit and loss P 1,000,000
2. Lucky Co., is offered 200,000 shares of Pacino Inc. in exchange for its net assets.
Pacino Inc. share capital has market value of P11 per share. The offer is accepted.
The statements of financial position of the two companies (in thousand) follow:
Pacino Inc. Lucky Co.
Total Assets P1,097.50 P1,733.25
Total Liabilities 312.50 383.25
OSC, P1par, 800,000 shares outstanding 800.00
OSC, no par, 2,500 shares outstanding 25.00
Retained Earnings(deficit) (15.00) 1,325.00
Total Liabilities and Equity P1,097.50 P1,733.25

The total assets of Pacino after affecting the combination is

a. P2,830,750 c. P3,000,000
b. P2,950,000 d. P3,680,750
ANSWER
 Total assets of Pacino before the combination P1,097,500
D
Assets acquired from Lucky 1,733,250
Goodwill recorded upon combination 850,000
Total assets after the combination P3,680,750

Consideration transferred (200,000 sh @ P11) P2,200,000

Net assets acquired (P1,733,250 – P383,250) 1,350,000

Goodwill P 850,000
3. Green Corp acquired on July 1, 2014, 100% of the Blue Company when the
fair value of Blue Company net assets was P200 million and their carrying
amount was P135 million. The consideration transferred comprised of P280
million in cash transferred at the acquisition date, plus another 50 million in
cash to be transferred 10 months after the acquisition date if a specified
profit target was achieved by Blue Company. At the acquisition date there
was only a low probability of the profit target being met, so the fair value of
the additional consideration liability was P5 million. In the event the profit
target was met then the P50 million cash was transferred

What amount of goodwill should Green Corp. present in its statement of consolidated
financial position at December 31, 2015?
a. P85million c.P200 million
b. P130million d. P280 million
ANSWER
A P285 – P200 = P85 million
4. On June 30,2014, Nice Corp. acquired 100% of the equity share capital of
Short Company. Nice Corp. issued 50,000 new P10 par ordinary shares which
had a fair value of P18 each at the acquisition date. In addition the
acquisition resulted in Short Company incurring fees payable to external
advisers of P200,000 and share issue costs of P180,000.

In accordance with PFRS 3, goodwill at the acquisition date is measured by

subtracting the identifiable assets acquired and the liabilities assumed from
a.P380,000 c. P900,000
b.P500,000 d. P1,080,000
ANSWER
C 50,000 @ P18= P900,000
5. An 80% interest as was acquired by the Titan Company in Vitto Company
on July 1, 2014 for P2,200,000 when the fair value of the identifiable assets
and liabilities of Vitto Company was P2,000,000. Titan Company elected to
measure the non controlling interest at its share of the identifiable net
assets. Annual impairment of goodwill have not resulted in any impairment
losses being recognized. Vitto Company’s current statement of financial
position shows share capital of P400,000, a revaluation reserve of P300,000
and retained earnings of P900,000.

Under PFRS 3, how much goodwill should be reported in the consolidated of

financial position.?
a. P100,000 c. P400,000
b. P200,000 d. P600,000
ANSWER
D P2,200,000 – (P2,000,000 x
80%) = P600,000
difficulT ROUND
1. Companies A and B decide to combine. Net Assets and estimated earnings
contributions are as follows:
Co. A Co. B Co. C
Net Asset Contributions P300,000 P400,000 P700,000
Estimated Annual Earnings
Contributions 50,000 80,000 130,000

Shareholders of the two companies agree that a single class of share capital be
issued that their contributions be measured by net assets plus allowances for
goodwill, and that 8% be considered as a normal rate of return. Earnings in excess
of the normal rate of return shall be capitalized at 10% in calculating goodwill. It
was also agreed that the authorized share capital of the new corporation shall be
20,000 shares with par value of P100 a share.

The Goodwill credited to Company A amounts to

a.P50,000 c.P150,000
b.P100,000 d.P260,000
ANSWER
 Average earnings P 50,000
D
Normal earnings (P300,000 x 8%) 24,000
Excess earnings P 26,000
Goodwill (P26,000/10%) P260,000
1. Companies A and B decide to combine. Net Assets and estimated earnings
contributions are as follows:
Co. A Co. B Co. C
Net Asset Contributions P300,000 P400,000 P700,000
Estimated Annual Earnings
Contributions 50,000 80,000 130,000

Shareholders of the two companies agree that a single class of share capital be issued that
their contributions be measured by net assets plus allowances for goodwill, and that 8%
be considered as a normal rate of return. Earnings in excess of the normal rate of return
shall be capitalized at 10% in calculating goodwill. It was also agreed that the authorized
share capital of the new corporation shall be 20,000 shares with par value of P100 a share.
The total contribution of Company B(net assets and goodwill) is
a. P480,000 c.P600,000
b. P500,000 d.P880,000
ANSWER
D Average earnings P 80,000
Normal earnings (P400,000 x 8%) 32,000
Excess earnings P 48,000
Goodwill (P48,000/10%) P480,000
Net asset contribution 400,000
Total contribution P880,000
3. CDE Corp and EFG Co. which are both engaged in the manufacture of
industrial gases, are being combined to form Stuntman Gases Corp. The
constituent companies agreed to the issuance by Stuntman Gases Corp of
P100 par value share capital for their contributions and goodwill. The
goodwill shall be equal to earnings in excess of 6% on the asset contributions
capitalized at 10%. Their asset and earnings contributions are as follows:
Net Intangible Assets Expected Annual
Earnings
CDE Corp. P250,000 P25,000
EFG Corp. 150,000 14,000

What amount should be recognized by Stuntman Gases Corp. as goodwill?

a. P35,000 c. P100,000
b. P50,000 d. P150,000
ANSWER
 JPE = [P25,000 – (P250,000 x 6%)]/10% P 100,000
D
FPJ = [P14,000 – (P150,000 x 8%)]/10% 50,000

Total goodwill P 150,000