Question

When a business combination occurs, or a company obtains control over another, a special set of accounting principles known as the acquisition method applies. The acquisition method requires that the acquired net assets are recorded on the balance sheet at fair value, regardless of the amount paid by the acquirer.
a. True
b. False

Answer 1

Answer:

a. True

Explanation:

The Acquirer is deemed to have acquired the assets at Fair Value at the Acquisition date.

These assets are then included in the Consolidated Statements at their fair values at acquisition irregardless of the amount paid by the acquirer.

The difference in the amount paid by Acquirer and the Net Assets acquired can bring about Goodwill or a Gain from Bargain Purchase.