BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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All identifiable assets and liabilities are recorded at fair value at the date of acquisition.
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All identifiable assets and liabilities are recorded at book value at the date of acquisition.
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Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets acquired.
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None of the above is correct.
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Detailed explanation-1: -All identifiable assets and liabilities are recorded at fair value at the date of acquisition. All identifiable assets and liabilities are recorded at book value at the date of acquisition. Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets acquired.
Detailed explanation-2: -All assets acquired and liabilities assumed in a business combination are measured at acquisition-date fair value.
Detailed explanation-3: -IFRS 3 defines the acquisition date as the date the acquirer obtains control of the acquiree. In a combination effected by a sale and purchase agreement, this is generally the specified closing or completion date (the date when the consideration is transferred and acquiree shares or underlying net assets are acquired).
Detailed explanation-4: -Answer and Explanation: The correct answer is b. Net assets of the acquired company are reported at their fair values. At the time of acquisition, the net acquired company’s net assets are reported at fair value.
Detailed explanation-5: -Examples of consideration transferred found in ASC 805-30-30-7 include cash, other assets, contingent consideration, a subsidiary or a business of the acquirer transferred to the seller, common or preferred equity instruments, options, warrants, and member interests of mutual entities.