ACC567 | Financial Accounting 2 Online Quiz | Management

1. Edward Ltd acquires all issued shares in Jacob Ltd for $220 000 paid in cash. Equity of Jacob Ltd consists of $130 000 share capital and $45 000 retained earnings. At acquisition date, Jacob Ltd owns a block of land, which it initially purchased at $200 000. The fair value of the land is $240 000. The carrying amount of Jacob Ltd’s property, plant and equipment is $130 000 with accumulated depreciation of $55 000. The fair value of the property, plant and equipment is $95 000.
If the tax rate is 30%, what would be the amount of Business Combination Value Reserve that must be recognised at the acquisition date?

A. $40 000
B. $45 000
C. $52 500
D. $60 000

2. In which of the following situations is an investor more likely to have power over an investee when the investor holds less than 50% of the investee’s shares?
A. The remaining shares are held by a small number of shareholders.
B. The remaining shares are held by shareholders who majority live overseas.
C. Majority of remaining shareholders attend and vote at the annual general meeting.
D. Majority of remaining shareholders have concerns with environmental issues related to the investee’s operations.

3. Company X acquired Company Y when the carrying value of Company Y’s plant was $50 000. The fair value of the plant on acquisition date was $65 000. The company tax rate was 30%. How much is the amount of the business combination valuation reserve that must be recognised?
A. $65 000
B. $15 000
C. $10 500
D. $3 500                                            

                                                            

                                                                                                                    

                     

4. Edward Ltd acquires all issued shares in Jacob Ltd for $220 000 paid in cash. Equity of Jacob Ltd consists of $130 000 share capital and $45 000 retained earnings. At acquisition date, Jacob Ltd owns a block of land, which it initially purchased at $200 000. The fair value of the land is $240 000. The carrying amount of Jacob Ltd’s property, plant and equipment is $130 000 with accumulated depreciation of $55 000. The fair value of the property, plant and equipment is $95 000. The tax rate is 30%.

Which of the following statements is correct about the above business combination?
A. There is gain on bargain purchase of $45 000 to be recognised.
B. There is goodwill of $45 000 to be recognised.
C. There is gain on bargain purchase of $3000 to be recognised.
D. There is goodwill of $3000 to be recognised.

5. The key characteristic that determines which entities financial statements should be combined into a set of consolidated financial statements is:
A. The existence of transactions between the entities
B. Control
C. Substance over form
D. Access to the financial statements of each entity that is to be combined.