With the business combination valuation reserve, the valuation entry establishes the reserve, and the pre-acquisition entry eliminates it because it is by nature pre-acquisition equity.

Question

Quizplus · Accepted Answer

The statement is correct. The business combination valuation reserve is created to adjust the carrying value of the acquired assets and liabilities to their fair values. The valuation entry establishes the reserve and increases the carrying value of the assets and liabilities. However, since the reserve relates to the pre-acquisition period, it cannot be considered post-acquisition equity. Therefore, the pre-acquisition entry eliminates the reserve to avoid double-counting it in the equity of the combined entity.

With the Business Combination Valuation Reserve, the Valuation Entry Establishes