Question

IFRS 3 outlines the accounting requirements for business combinations. Which of the following statements is correct?

Multiple Choice

• The new entity method can only be used when cash is the sole consideration offered by the acquirer in a business combination.

• The only acceptable method of accounting for business combinations is the new entity method.

• Companies may choose between the new entity method and the acquisition method when accounting for business combinations.

• The only acceptable method of accounting for business combinations is the acquisition method.

Parent and Sub Inc. had the following balance sheets on December 31, 2019:

	Parent	Sub
Current Assets	$ 60,000	$10,000
Fixed Assets (net)	$100,000	$60,000
Total Assets	$160,000	$70,000
Current Liabilities	$ 42,000	$35,000
Bonds Payable	$ 20,000	$12,000
Common Shares	$ 90,000	$12,000
Retained Earnings	$ 8,000	$11,000
Total Liabilities and Equity	$160,000	$70,000

On January 1, 2020, Parent purchased all of Sub Inc.'s Common Shares for $40,000 in cash. On that date, Sub's Current Assets and Fixed Assets were worth $26,000 and $54,000, respectively. Assuming that Consolidated Financial Statements were prepared on that date, answer the following:

The Current Assets of the combined entity should be valued at:

Multiple Choice

• $170,000

• $46,000

• $70,000

• $114,000

IOU Inc. purchased all of the outstanding common shares of UNI Inc. for cash of $800,000. On the date of acquisition, UNI's assets included $2,000,000 of Inventory, and Land with a Book value of $120,000. UNI also had $1,400,000 in Liabilities on that date. UNI's book values were equal to their fair market values, with the exception of the company's Land, which was estimated to have a fair market value which was $50,000 higher than its book value.

Assuming that the purchase of the common shares of UNI Inc. was properly recorded at cost, which of the following journal entries is required to prepare Consolidated Financial Statements the day following the acquisition?

Multiple Choice

• 	Debit	Credit
  Net Assets	$800,000
  Cash		$800,000

• 	Debit	Credit
  Inventory	$2,000,000
  Land	$170,000
  Goodwill	$30,000
  Liabilities		$1,400,000
  Investments in UNI		$800,000

• 	Debit	Credit
  Investment in UNI	$800,000
  Cash		$800,000

Answer 1

Answer:- while parent and sub inc are being Consolidated their current Assets values will be added together :- the value of current Assets will be combined value of current Assets of both the entities.

Current Assets value :-

Parent inc :- $60000

(+) Sub inc :- $26000(taken at revalued figure)

= $86000

Answer is $86000 it means the above options are not current.

2. Answer :- Entry :- 3rd is correct

Investment in UNI .....Dr. $800000

To Cash. $800000