How should the acquisition cost of a Business Combination be allocated prior to preparing Consolidated Financial Statements?
A) The acquisition cost should be allocated to the acquiree's book value.
B) The acquisition cost should be allocated to the acquired company's identifiable assets and liabilities to bring them to their fair value.
C) The acquisition cost should be reflected as an increase in the acquirer's Investment (in the subsidiary) account.
D) The treatment of the acquisition cost depends largely on the type of consideration given by the acquirer.

Question

Quizplus · Accepted Answer

The acquisition cost should be allocated to the acquired company's identifiable assets and liabilities to bring them to their fair value. This is known as the purchase price allocation process and is necessary for accurately reflecting the fair value of assets and liabilities of the acquired company in the consolidated financial statements.

How Should the Acquisition Cost of a Business Combination Be