If the book value of net assets of a subsidiary are less than the fair market value of net assets of the subsidiary at the time the subsidiary is acquired,which of the following procedures is incorrect with respect to the subsidiary,parent,and consolidated accounts?

Question

Quizplus · Accepted Answer

Recording the difference between the subsidiary's book value of net assets and its fair market value of net assets as a separate asset on the parent's balance sheet is incorrect. The correct procedure is to write up the book values of the subsidiary accounts to their revised fair market values only on consolidation. The subsidiary should continue as a going concern with its accounts valued at the lower book value amounts, and the parent should record the acquisition of the subsidiary at its acquisition cost. Any part of the acquisition price that cannot be attributed to the revised fair market value of the subsidiary's assets and liabilities will be considered goodwill on the consolidated balance sheet.

If the Book Value of Net Assets of a Subsidiary