What is the correct method of treating an acquisition differential arising from a Preferred Share Issue?
A) It should be treated as an adjustment to goodwill.
B) It should be pro-rated across the subsidiary's identifiable assets and liabilities.
C) It should be expensed in the current year.
D) It should be adjusted to a contributed surplus or retained earnings account.

Question

Quizplus · Accepted Answer

The correct method of treating an acquisition differential arising from a Preferred Share Issue is to adjust it to a contributed surplus or retained earnings account. This is because the excess amount paid for the preferred shares represents a contribution by the shareholders, which should not be recognized as goodwill or expensed in the current year. As a result, the excess amount should be recorded as a non-operating transaction in the contributed surplus or retained earnings account, and may be available for future distribution as dividends or other forms of shareholder returns.

What Is the Correct Method of Treating an Acquisition Differential