Question

QUESTION 17

1. What is the best description of how assets and liabilities of a subsidiary are shown in consolidation, when the acquirer bought stock in steps, occurring over several years?

   	a.	They are shown based on the book values on the subsidiary’s books
   	b.	They are shown based on fair value as of the latest date stock was acquired, as long as the acquirer has significant influence, adjusted for amortization
   	c.	They are shown based on fair value as of the time the acquirer first obtained significant influence, adjusted for amortization
   	d.	They are shown based on fair value as of the time the acquirer first obtained control, adjusted for amortization

Answer 1

Answer to Question

Option b. They are shown based on fair value as of the latest date stcok was acquired, as long as the acquirer has significant influence, adjusted for amortization.

An acquirer sometimes obtains control of an acquiree in which it held an equity interest immediately before the acquisition date. For example, on December 31, 20X1, Entity A holds a 35 percent noncontrolling equity interest in Entity B. On that date, Entity A purchases an additional 40 percent interest in Entity B, which gives it control of Entity B. This Topic refers to such a transaction as a business combination achieved in stages, sometimes also referred to as a step acquisition. In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in earnings. In prior reporting periods, the acquirer may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income (for example, because the investment was classified as available for sale). If so, the amount that was recognized in other comprehensive income shall be reclassified and included in the calculation of gain or loss as of the acquisition date. If the business combination achieved in stages relates to a previously held equity method investment that is a foreign entity, the amount of accumulated other comprehensive income that is reclassified and included in the calculation of gain or loss shall include any foreign currency translation adjustment related to that previously held investment. For guidance on derecognizing foreign currency translation adjustments recorded in accumulated other comprehensive income.