Financial Accounting Questions and Answers Part-5

1. The value of assets or liabilities not taken over by the purchasing company is
a) ignored while calculating purchase consideration by net payment method
b) ignored while calculating purchase consideration by net asset method
c) considered while calculating purchase consideration by net asset method
d) none of the above

Answer: b

2. The Unamortized Expenditure not written off is
a) ignored while calculating purchase consideration by net payment method
b) ignored while calculating purchase consideration by net asset method
c) considered while calculating purchase consideration by net asset method
d) none of the above

Answer: b

3. Liquidation expenses of Vendor Co. agreed to be paid / re-imbursed by the Purchasing Co., should be
a) considered while calculating purchase consideration by net payment method
b) considered while calculating purchase consideration by net asset method
c) ignored while calculating the purchase consideration (whether under net payments method or net assets method).
d) none of the above

Answer: c

4. As per AS-14 purchase consideration is what is payable to
a) Shareholders
b) Shareholders and debenture holders
c) Shareholders and creditors
d) None of the above

Answer: a

5. When amalgamation is in the nature of merger, the accounting method to be followed is :
a) Equity method
b) Purchase method
c) Pooling of interests method
d) None of the above

Answer: c

6. Amalgamation adjustment reserve is opened in the books of transferee company to incorporate
a) The assets of the transferor company
b) The liabilities of the transferor company
c) The statutory reserves of the transferor company
d) None of the above

Answer: c

7. Under the 'Purchase method of accounting', the transferee company incorporates in its books:
a) Only the assets and liabilities of the transferor company
b) Only the assets, liabilities and statutory reserves of the transferor company
c) Only the assets, liabilities and reserves of the transferor company
d) None of the above

Answer: b

8. Goodwill arising on amalgamation is to be
a) Retained in the books of the transferee company
b) Amortised to income on a systematic basis
c) Adjusted against reserves and profit and loss account of the transferee company immediately
d) None of the above

Answer: b

9. Under the pooling of interests method the difference between the purchase consideration and share capital of transferee company should be adjusted to :
a) General reserve
b) Amalgamation adjustment reserve
c) Goodwill or capital reserve
d) None of the above

Answer: a

10. At the time of amalgamation, purchase consideration does not include
a) The sum which the transferee company will directly pay to the creditors of the transferor company
b) Payments made in the form of assets by the transferee company to the shareholders of the transferor company
c) Preference shares issued by the transferee company to the preference shareholders of the transferor company
d) preference shares issued by the transferee company to the equity shareholders of the transferor company

Answer: a