Reference no: EM132950881

Problem 1: Under IFRS 3, how shall an entity (acquirer) account for each business combination?

a) Equity method
b) Acquisition method
c) Proportionate consolidation method
d) Pooling of interest method

Problem 2: Under IFRS 3, contrary to IAS 37, what is the recognition principle of contingent liability assumed in a business combination?

a) The acquirer shall recognize as of the acquisition date a contingent liability assumed in a business combination if it is a present obligation that arises from past events and its fair value can be measured reliably even only reasonably possible.
b) The acquirer shall recognize a contingent liability assumed in a business combination at the acquisition date only if it is virtually certain that an outflow of resources embodying economic benefits will be required to settle the obligation.
c) The acquirer shall recognize a contingent liability assumed in a business combination at the acquisition date only if it is remote that an outflow of resources embodying economic benefits will be required to settle the obligation.
d) The acquirer shall recognize a contingent liability assumed in a business combination at the acquisition date only if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

Problem 3: In some changes in the fair value of contingent consideration that the acquirer recognizes after the acquisition date may be the result of additional information that the acquirer obtained after that date about facts and circumstances that existed at the acquisition date. These are called measurement period adjustments that can be adjusted during the measurement period. Which of the following transactions is considered as a measurement period adjustment that the acquirer shall retrospectively adjust goodwill/gain on bargain purchase during the measurement period which shall not exceed one year from acquisition date?

a) Increase in the fair value of the financial liability at fair value through profit or loss issued as consideration for business combination due to movement of prices in the exchange market.
b) Changes in the value of contingent consideration occurring within one year from the acquisition date as a result of events occurring after the acquisition date such as meetings on earnings target, a specified share price or reaching a milestone on a research and development project.
c) Changes in the provisional amount of contingent liability or contingent consideration as a result of new information obtained about the facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date.
d) Change in the carrying amount of the financial liability at amortized cost issued as consideration for business combination due to amortization of the premium/discount on financial liability.