Advanced Accounting – Business Combinations: When One Plus One Makes One
How groups of companies report as one: acquisitions, goodwill, consolidation, intragroup eliminations, associates, joint arrangements, foreign currency and segments.
Try 3 questions
1. Which method must be used for business combinations under IFRS 3?
- The pooling of interests method
- The equity method
- The acquisition method
Show the answer
Answer: The acquisition method
IFRS 3 banned pooling of interests, which simply added book values together; every combination now has an identified acquirer.
2. How are the legal and advisory fees a buyer pays to complete an acquisition treated under IFRS 3?
- Capitalized as a separate intangible
- Added to the goodwill recognized
- Expensed as they are incurred
Show the answer
Answer: Expensed as they are incurred
Deal costs are not part of what is exchanged with the seller, so they hit profit immediately rather than inflating goodwill.
3. A small listed shell company issues shares to buy a much larger private firm, whose owners end up controlling it. Who is the accounting acquirer?
- The listed shell company
- Neither, as it is a merger
- The larger private firm
Show the answer
Answer: The larger private firm
In a reverse acquisition the legal buyer is treated as the acquiree, because control actually passes to the private firm's owners.
The whole quiz comes before your apps
BrainTok asks a few questions like these before the apps you choose open, so your screen time turns into learning. For iPhone.
Join the beta