The effect of the adjustment entry at the date of acquisition is to eliminate the ‘Shares in subsidiary’ asset and the:
Question
The effect of the adjustment entry at the date of acquisition is to eliminate the ‘Shares in subsidiary’ asset and the:
Solution
The effect of the adjustment entry at the date of acquisition is to eliminate the ‘Shares in subsidiary’ asset and the:
Equity of the subsidiary.
Here are the steps to understand this:
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Shares in Subsidiary: When a parent company acquires a subsidiary, it records the investment as 'Shares in subsidiary' in its books. This is an asset for the parent company.
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Equity of the Subsidiary: The equity of the subsidiary represents the net assets (total assets minus total liabilities) of the subsidiary. This is recorded in the subsidiary's books.
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Adjustment Entry at the Date of Acquisition: When preparing consolidated financial statements, an adjustment entry is made to eliminate the 'Shares in subsidiary' asset from the parent's books and the equity of the subsidiary from the subsidiary's books. This is necessary to avoid double counting of the net assets in the consolidated financial statements.
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Effect of the Adjustment Entry: The effect of the adjustment entry is to eliminate the 'Shares in subsidiary' asset and the equity of the subsidiary. This ensures that the consolidated financial statements present the financial position of the group as a single economic entity, rather than the sum of separate entities.
Therefore, the effect of the adjustment entry at the date of acquisition is to eliminate the ‘Shares in subsidiary’ asset and the equity of the subsidiary.
Similar Questions
The investment elimination entry at the date of acquisition is necessary to:Group of answer choicesavoid overstating the equity and net assets of the parent.record the ‘Shares in subsidiary’ account in the parents records.avoid overstating the equity and net assets of the group.avoid understating the equity and net assets of the group.
At the date of acquisition, a subsidiary had recorded a dividend payable of $10000. Assuming that the shares were acquired on a cum div. basis, the consolidation adjustment needed at the date of acquisition to eliminate the dividend is:
Pre-acquisition profit in subsidiary company is considered as:
Which of following statements is not correct in relation to the consolidation process?Group of answer choicesTo avoid double counting of the group's equity, the equity of the subsidiary at the acquisition date needs to be eliminated from the records of the subsidiary.Subsequent to the acquisition date, any intragroup transactions within the group needs to be adjusted and eliminated.The fair value adjustments of assets that were not previously recorded by the subsidiary are recognised in the business combination valuation entries.Consolidated financial statements should offset the carrying amount of the parent's investment in the subsidiary.
Which of the following statements is incorrect?Group of answer choicesA bargain purchase gain arises when the purchase consideration is greater than the FVINA acquired.When a subsidiary has existing goodwill in their books at the date of acquisition, the amount of FVINA will decrease in the acquisition analysis.The Investment in subsidiary account is always eliminated on consolidation and this account will always be equal to zero for the group.If a company acquires shares in a subsidiary cum div, consolidation adjusting entries are required to eliminate dividend payable and dividend receivable up until the dividend is paid by the subsidiary.
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