Any goodwill on the subsidiary company's books on the date of acquisition:
A) must be revalued.
B) must be eliminated in preparing consolidated financial statements.
C) must be recorded as a loss on acquisition.
D) must be subject to an impairment test.

Question

Quizplus · Accepted Answer

Any goodwill on the subsidiary company's books on the date of acquisition must be eliminated in preparing consolidated financial statements as it represents the excess of the cost of acquisition over the subsidiary's net assets. This is because the consolidated financial statements must present the financial position and performance of the group as a whole, and therefore any intercompany transactions and balances must be removed. The elimination of goodwill is necessary to avoid double counting of the subsidiary's value.

Any Goodwill on the Subsidiary Company's Books on the Date