It is important to distinguish between pre-acquisition 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-acquisition and post-acquisition equity helps in avoiding double counting of pre-acquisition equity. This is because pre-acquisition equity is already reflected in the value of the investment made in the subsidiary. By distinguishing between the two, the parent can ensure that pre-acquisition equity is not counted twice – once in the investment and again in the subsidiary’s equity after acquisition.

It Is Important to Distinguish Between Pre-Acquisition and Post-Acquisition Equity