IFRS for SMEs) IFRS for SMEs Business Combinations and Goodwill 2 — Questions and Answers
Question 1: In a business combination under IFRS for SMEs, which of the following would qualify for separate recognition as an intangible asset apart from goodwill?
- Assembled workforce synergies
- A customer list that is separable and can be sold independently (Correct answer)
- Expected future cost savings from integration
- Favorable employee morale
Correct answer: A customer list that is separable and can be sold independently
A customer list that can be separated and sold independently meets the separability criterion and is recognized as an intangible asset apart from goodwill.
Question 2: Under IFRS for SMEs, contingent consideration in a business combination is included in the cost of the combination only if:
- It is always included at fair value at the acquisition date
- Payment is probable and the amount can be measured reliably (Correct answer)
- It is approved by both parties' boards of directors
- The contingency is resolved within 12 months
Correct answer: Payment is probable and the amount can be measured reliably
IFRS for SMEs Section 19 includes contingent consideration in the combination cost only when payment is probable and the amount can be measured reliably.
Question 3: Under IFRS for SMEs, non-controlling interest (NCI) in a business combination is measured at:
- Fair value at the acquisition date
- NCI's proportionate share of the acquiree's identifiable net assets (Correct answer)
- Either fair value or proportionate share at the acquirer's choice
- Book value of net assets attributable to NCI
Correct answer: NCI's proportionate share of the acquiree's identifiable net assets
IFRS for SMEs requires NCI to be measured at the proportionate share of identifiable net assets; the option to measure at fair value (as in full IFRS) is not available.
Question 4: Under IFRS for SMEs, a contingent liability of the acquiree is recognized at the acquisition date if:
- Its fair value can be measured reliably, regardless of probability
- It is probable an outflow of economic benefits will occur
- It represents a present obligation and its fair value can be measured reliably (Correct answer)
- It was disclosed in the acquiree's pre-acquisition financial statements
Correct answer: It represents a present obligation and its fair value can be measured reliably
IFRS for SMEs recognizes an acquiree's contingent liabilities in a business combination only when they represent present obligations whose fair values can be reliably measured.
Question 5: How is goodwill presented in the statement of financial position under IFRS for SMEs?
- As a current asset
- As an intangible asset within non-current assets (Correct answer)
- As a separate line item distinct from all other intangibles
- As a reduction of equity
Correct answer: As an intangible asset within non-current assets
Goodwill is classified as an intangible asset and presented within non-current assets on the statement of financial position.
Question 6: If a contingent amount included in the cost of a business combination at acquisition is subsequently adjusted under IFRS for SMEs, the adjustment is treated by:
- Adjusting goodwill and the related asset or liability (Correct answer)
- Recognizing the adjustment in profit or loss in the current period
- Restating prior period financial statements retrospectively
- Offsetting the adjustment directly against retained earnings
Correct answer: Adjusting goodwill and the related asset or liability
Subsequent adjustments to contingent consideration that formed part of the combination cost are reflected as adjustments to goodwill under IFRS for SMEs Section 19.
Question 7: Under IFRS for SMEs, after initial recognition, goodwill is subsequently carried at:
- Fair value less accumulated amortization
- Cost less accumulated amortization and accumulated impairment losses (Correct answer)
- Replacement cost less accumulated depreciation
- Revalued amount less subsequent amortization
Correct answer: Cost less accumulated amortization and accumulated impairment losses
Goodwill is carried at cost less accumulated amortization and accumulated impairment losses; the revaluation model is not permitted for goodwill.
IFRS for SMEs) IFRS for SMEs Business Combinations and Goodwill 2
In a business combination under IFRS for SMEs, which of the following would qualify for separate recognition as an intangible asset apart from goodwill?