In an inflationary economy, under which consolidation method would total assets in the consolidated balance sheet at the acquisition date be greatest?
A) Proportionate consolidation method
B) Parent company method
C) Fair value enterprise method
D) Identifiable net assets method

Question

Quizplus · Accepted Answer

In an inflationary economy, the Fair Value Enterprise Method would result in the greatest total assets in the consolidated balance sheet at the acquisition date. This is because the fair value method values assets and liabilities at their current market value, which would be higher in an inflationary economy than in a stable or deflationary economy. In contrast, the Proportionate Consolidation Method and Parent Company Method do not take into account changes in fair value and may result in lower asset values. The Identifiable Net Assets Method values assets based on their book value, which may not reflect their current market value in an inflationary economy.

In an Inflationary Economy, Under Which Consolidation Method Would Total