Multiple choice

1. Which of the following is not a requirement for the acquirer of a business in a business combination, according to NZ IFRS 03 Business Combinations?

a) Determine what information to disclose in financial statements to enable users to evaluate the nature and financial effects of business combinations

b) Recognise and measure the goodwill or a gain from a bargain purchase in the acquisition

c) Recognise and measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree

d) Sell off any surplus assets

2. Which of the following statements is not correct regarding a business combination?

a) In a business combination, the acquiree obtains control of the other business (the acquirer)

b) An acquisition is the purchase of another entity

c) The acquisition date is the date on which the acquirer obtains control of the acquiree

d) A bargain purchase occurs when a company purchases another entity for less than the fair market value of its net assets

3. Which of the following statements is not correct regarding acquisitions?

a) A contingent liability acquired in a business combination is recognised if a present obligation has arisen from a past event and its fair value can be reliably measured, even if the outflow of resources required to settle the obligation is not probable

b) The key measurement principle is that the acquirer measures the assets acquired and the liabilities assumed at their fair value on acquisition date

c) Sometimes, the acquirer recognises assets or liabilities which were not previously recognised as assets and liabilities in the acquiree's financial statements, such as expenditure relating to brand names, patents or a customer relationship

d) If a loss on a bargain purchase arises, the loss can only be recognised after a review by the acquirer to reassess whether all assets and liabilities acquired have been correctly identified and correct procedures have been used to measure them

4. Which of the following statements is not correct regarding the definitions in NZ IFRS 10 Consolidated Financial Statements?

a) Eliminating entries are the journal entries (debits and credits) on a consolidation worksheet to eliminate transactions and balances between companies in the same group

b) Consideration is what is paid or transferred to acquire the subsidiary

c) Consolidated financial statements are the financial statements of a group of companies in which the assets, liabilities, equity, income, expenses and cash

flows of the parent and its subsidiaries are combined and presented as two single entities

d) Control of an investee exists when an investor is exposed, or has rights, to variable returns from that investee and the ability to affect those returns

5. Which of the following statements is not correct regarding an investor's power and control over an investee?

a) Investor power over an investee exists when the investor has the ability to direct the investee's operations, but excluding financial operations

b) An investor controls an investee if all three of the following apply: the parent has power over the investee, the parent has exposure or rights to variable returns from the investee, and the parent has the ability to affect the amount of the returns it receives from that investee

c) One investor may have power over an investee even though other entities may have significant influence to affect direction of the subsidiary's activities

d) Assessing whether an entity has power over another is straightforward when that power is obtained directly through the voting rights attached to shares