Which of the following statements regarding pre-acquisition adjustments is FALSE?
A)The adjustments involve the investment account Investment in Subsidiary as shown in the financial statements of the parent.
B)The adjustments involve the equity of the subsidiary at the acquisition date (i.e. the pre-acquisition equity).
C)A deferred tax liability is recognized to increase the goodwill carrying amount.
D)The pre-acquisition adjustment is necessary to avoid overstating the equity and net assets of the group.

Question

Quizplus · Accepted Answer

The statement that a deferred tax liability is recognized to increase the goodwill carrying amount is false. A deferred tax liability may be recognized for the temporary differences arising from the pre-acquisition adjustments but it does not increase the goodwill carrying amount. The other statements are true.

Which of the Following Statements Regarding Pre-Acquisition Adjustments Is FALSE