In the case of a reverse acquisition, the subsidiary effectively becomes the acquirer and:
A) its assets and liabilities are measured at cost.
B) the parent's assets and liabilities are measured at fair value.
C) its assets and liabilities are measured at fair value.
D) none of the above.

Question

Quizplus · Accepted Answer

In a reverse acquisition, the subsidiary is considered the acquirer for accounting purposes. Therefore, its assets and liabilities are measured at fair value, as this represents the most accurate reflection of their value at the time of the acquisition. The parent's assets and liabilities would also be measured at fair value, but since it is the subsidiary that is driving the transaction, their valuation is not as significant. Option A is incorrect because cost accounting is not appropriate for measuring the fair value of assets and liabilities.

In the Case of a Reverse Acquisition, the Subsidiary Effectively