IFRS 3 Outlines the Accounting Requirements for Business Combinations

question 5

Multiple Choice

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

• A) Companies may choose between the new entity method and the acquisition method when accounting for business combinations.
• B) The only acceptable method of accounting for business combinations is the new entity method.
• C) The only acceptable method of accounting for business combinations is the acquisition method.
• D) The new entity method can only be used when cash is the sole consideration offered by the acquirer in a business combination.

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Definitions:

Compromise Mechanism

A psychological strategy where conflicting demands are met by finding a middle ground or mutual concession, thus reducing internal tension.

Rationalization

A defense mechanism where controversial behaviors or feelings are justified and explained in a seemingly rational or logical manner to avoid the true explanation.

Bogus Reasons

False, misleading, or unfounded reasons provided to justify a decision or action.

Ineffective Techniques

Strategies or methods that fail to achieve the desired outcome or results, often due to a lack of efficiency or appropriateness in application.