Minminni

ADVANCED FINANCIAL ACCOUNTING 260

BUSINESS COMBINATIONS

QUIZ QUESTIONS

1. List two indicators which can assist in assessing which entity is the acquirer in a business combination. (2 Marks)

Determining the acquirer shall include a consideration of, among other things, which of the combining entities initiated the combination, as well as the relative size of the combining entities

2. Define control. (1 Mark)

The power to govern the financial and operating policies of an entity

3. Name two types of business combination which are not covered by the provisions of AASB 3. (2 Marks)

Property & plant

4. On 1 April 2012, Lemon Ltd acquired all of the issued shares of Orange Ltd. At this date, the share capital of Orange Ltd consisted of 70 000 ordinary shares issued at $2.60 each. Under the terms of the acquisition Lemon Ltd is to give each shareholder of Orange Ltd two (2) Lemon Ltd shares and $1.50 cash for each 5 Orange Ltd shares held. The fair value of a Lemon Ltd share is $3.20. It will cost Lemon Ltd $ 750 to issue the new shares.

Required

Calculate the cost of the business combination, show all workings. (2 Marks)

Consideration transferred : 70,000 (2*3.2 + 15*5) 973,000

Cost of the business combination 973,000

5. How are directly attributable acquisition related costs accounted for? Why? (1 Mark)

6. In accounting for a business combination assets and liabilities acquired and assets and equity given up are measured at fair value on acquisition date. Does this mean that goodwill is also measured at fair value on that date? (1 Mark)

7. On 1 April 2012, Lemon Ltd acquired all of the issued shares of Orange Ltd. At this date, the share capital of Orange Ltd consisted of 70 000 ordinary shares issued at $2.60 each. Under the terms of the acquisition Lemon Ltd is to give each shareholder of Orange Ltd two (2) Lemon Ltd shares and $1.50 cash for each 5...