It is important to distinguish between pre and post acquisition equity of a subsidiary to allow:
A) post acquisition equity to be eliminated on consolidation
B) goodwill or gain on bargain purchase to be calculated
C) avoidance of double counting of pre acquisition equity
D) none of the above

Question

Quizplus · Accepted Answer

Distinguishing between pre and post acquisition equity of a subsidiary is important to avoid double counting of pre acquisition equity. Pre acquisition equity of a subsidiary should not be included in the consolidation process, while post acquisition equity can be eliminated or adjusted depending on the accounting method used. Goodwill or gain on bargain purchase can also be calculated based on the difference between the fair value of the subsidiary's net assets and the price paid for the acquisition.

It Is Important to Distinguish Between Pre and Post Acquisition