Multiple-Choice Questions (1.

65 point each)

1. Company A acquires Company B for $1,000,000. The fair value of Company B’s identifiable
net assets is $850,000. What is the amount of goodwill recognized in this business
combination?
A. $150,000
B. $850,000
C. $1,000,000
D. $1,850,000
2. Company X acquires Company Y for $500,000. The fair value of Company Y’s identifiable net
assets is $600,000. What is the gain on bargain purchase?
A. $100,000
B. $500,000
C. $600,000
D. $1,100,000
3. Company P acquires 80% of Company Q for $800,000. The fair value of Company Q’s
identifiable net assets is $1,000,000. What is the value of the non-controlling interest (NCI)?
A. $200,000
B. $800,000
C. $1,000,000
D. $1,800,000
4. Which of the following best describes a business combination?
A. A merger of two companies into a single entity.
B. A transaction where one company acquires control over another.
C. A partnership formed for a specific project.
D. A joint venture between two companies.
5. Which of the following is not a type of business combination?
A. Merger
B. Acquisition
C. Consolidation
D. Strategic Alliance
6. Under IFRS 3, how is goodwill calculated in a business combination?
A. Purchase Price + Fair Value of Net Assets
B. Purchase Price - Fair Value of Net Assets
C. Fair Value of Net Assets - Purchase Price
D. Purchase Price × Fair Value of Net Assets

7. Which of the following is a primary reason for companies to engage in business

combinations?
 A. To reduce competition
B. To achieve economies of scale
C. To increase market share
D. All of the above
8. A company grants 10,000 stock options to an employee with a fair value of $5 per option.
What is the total fair value of the stock options granted?
A. $5,000
B. $10,000
C. $50,000
D. $100,000
9. A company grants 5,000 restricted stock units (RSUs) with a fair value of $10 per unit. The
vesting period is 2 years. What is the annual expense recognized for these RSUs?
A. $5,000
B. $10,000
C. $25,000
D. $50,000
10. Which of the following best describes a share-based payment arrangement?
A. A payment made in cash for services received.
B. A transaction where equity instruments are issued in exchange for goods or services.
C. A loan provided to employees to purchase company shares.
D. A dividend paid to shareholders.
11. Which of the following is not a type of share-based payment?
A. Stock options
B. Restricted stock units (RSUs)
C. Employee stock purchase plans (ESPPs)
D. Cash bonuses
12. Under IFRS 2, how are share-based payments typically measured?
A. At historical cost
B. At fair value
C. At market value
D. At par value

13. Which of the following is a primary reason for companies to use share-based payment
arrangements?
A. To reduce cash outflows
B. To align employee interests with shareholder interests
 C. To avoid regulatory compliance
D. To increase short-term profits
14. Company A acquires 100% of Company B for $1,000,000. The fair value of Company B’s
identifiable net assets is $850,000. What is the amount of goodwill recognized?
A. $150,000
B. $850,000
C. $1,000,000
D. $1,850,000
15. Company P acquires 80% of Company Q for $800,000. The fair value of Company Q’s
identifiable net assets is $1,000,000. What is the value of the non-controlling interest (NCI)?
A. $200,000
B. $800,000
C. $1,000,000
D. $1,800,000
16. Company X has revenue of $500,000, and Company Y (its subsidiary) has revenue of
$300,000. What is the consolidated revenue?
A. $500,000
B. $300,000
C. $800,000
D. $200,000
17. Company A sells goods worth $50,000 to its subsidiary, Company B. How much should be
eliminated in the consolidated financial statements?
A. $0
B. $25,000
C. $50,000
D. $100,000
18. Company M has net income of $200,000, and its subsidiary, Company N, has net income of
$100,000. There are no adjustments or eliminations. What is the consolidated net income?
A. $100,000
B. $200,000
C. $300,000
D. $400,000

19. Company X has retained earnings of $1,000,000, and its subsidiary, Company Y, has retained
earnings of $500,000. What is the consolidated retained earnings?
A. $500,000
B. $1,000,000
C. $1,500,000
 D. $2,000,000
20. Company A receives $10,000 in dividends from its subsidiary, Company B. How much should
be eliminated in the consolidated financial statements?
A. $0
B. $5,000
C. $10,000
D. $20,000
21. What is the primary purpose of consolidating financial statements?
A. To separate parent and subsidiary financials
B. To present the financial position of the group as a single economic entity
C. To reduce tax liabilities
D. To increase reported revenue
22. What does non-controlling interest (NCI) represent in consolidated financial statements?
A. The parent company’s share of the subsidiary
B. The subsidiary’s share of the parent company
C. The equity interest in a subsidiary not owned by the parent
D. The total liabilities of the subsidiary
23. Why must intercompany transactions be eliminated in consolidation?
A. To reduce reported revenue
B. To avoid double-counting of revenues and expenses
C. To increase the parent company’s net income
D. To comply with tax regulations
24. Which of the following is not a typical consolidation adjustment?
A. Elimination of intercompany sales
B. Recognition of goodwill
C. Adjustment for depreciation of intercompany assets
D. Recording of non-controlling interest as revenue

25. Company A acquires 80% of Company B for $1,600,000. The fair value of Company B’s
identifiable net assets is $1,800,000. The fair value of the non-controlling interest (NCI) is
$400,000. What is the amount of goodwill recognized in this acquisition?
A. $100,000
B. $200,000
C. $300,000
D. $400,000
26. Company X owns 100% of Company Y. At the end of the year, Company X’s retained earnings
are $2,000,000, and Company Y’s retained earnings are $1,000,000. During the year,
Company X sold goods to Company Y for $200,000, earning a profit of $50,000. Half of these
goods remain in Company Y’s inventory. What is the consolidated retained earnings?
A. $2,950,000
B. $2,975,000
C. $3,000,000
D. $3,025,000
27. Company P sells a machine to its subsidiary, Company S, for $120,000. The machine had a
book value of $100,000 at the time of sale and a remaining useful life of 5 years. What is
the annual depreciation adjustment in the consolidated financial statements?
A. $2,000
B. $4,000
C. $6,000
D. $8,000
28. Company A lends $500,000 to its subsidiary, Company B, at an interest rate of 5%. At year-
end, Company B has not yet paid the interest. What is the total amount to be eliminated in
the consolidated financial statements?
A. $500,000
B. $525,000
C. $550,000
D. $575,000
29. Company M owns 70% of Company N. Company M reports net income of $1,000,000, and
Company N reports net income of $400,000. There are no intercompany transaction. What
is the consolidated net income, and how much is attributable to the non-controlling interest
(NCI)?
A. Consolidated Net Income = $1,400,000; NCI = $120,000
B. Consolidated Net Income = $1,400,000; NCI = $280,000
C. Consolidated Net Income = $1,000,000; NCI = $120,000
D. Consolidated Net Income = $1,000,000; NCI = $280,000
30. Company X acquires 100% of Company Y for $2,000,000. The fair value of Company Y’s
identifiable net assets is $2,500,000. What is the gain on bargain purchase?
A. $0
B. $250,000
C. $500,000
D. $750,000