CFC Merger & Acquisition Accounting 2

Question 1

Under ASC 805, how should acquisition-related costs (e.g., advisory and legal fees) be treated by the acquirer?

Accepted Answer

Expensed as incurred in the period

Answer

ASC 805 requires acquisition-related costs to be expensed as incurred, not capitalized into goodwill or the purchase price.

Question 2

A contingent consideration arrangement in a business combination requires the acquirer to pay an additional $5M if revenue targets are met. At acquisition date, this contingency has a fair value of $2M. How is it initially recorded?

Accepted Answer

At fair value of $2M in the purchase price allocation

Answer

ASC 805 requires contingent consideration to be recorded at fair value on the acquisition date as part of the purchase price allocation.

Question 3

What is a 'bargain purchase' in the context of a business combination?

Accepted Answer

An acquisition where fair value of net identifiable assets exceeds the purchase price

Answer

A bargain purchase occurs when the fair value of net identifiable assets acquired exceeds the total consideration transferred, resulting in a gain rather than goodwill.

Question 4

In a step acquisition, a company holds a 30% equity method investment and later acquires an additional 45% to gain control. How is the previously held 30% interest treated?

Accepted Answer

Remeasured at fair value with any gain or loss recognized in earnings

Answer

ASC 805 requires remeasurement of the previously held equity interest at fair value on the acquisition date, with the resulting gain or loss recognized in earnings.

Question 5

Which of the following best describes the 'measurement period' under ASC 805 for a business combination?

Accepted Answer

Up to one year after the acquisition date to finalize fair value measurements

Answer

The measurement period under ASC 805 allows up to one year after the acquisition date to adjust provisional fair value estimates as new information is obtained.

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC Merger & Acquisition Accounting 2