Immediately after the acquisition, how are the seller's assets and liabilities reflected in the consolidated balance sheet?

Immediately after the acquisition, how are the seller's assets and liabilities reflected in the consolidated balance sheet?

• A. Only assets added
• B. Only liabilities added
• C. Assets and liabilities from the seller are added to the acquirer
• D. The seller's assets are offset against liabilities

Answer: (C)

In consolidation, the acquired business is treated as part of the group, so both its assets and its liabilities are brought into the consolidated balance sheet. They are reflected at their acquisition-date fair values, and then combined with the acquirer’s own items. This ensures the group shows the full net resources it controls after the acquisition. Any difference between the purchase consideration and the net identifiable assets becomes goodwill (or, in a bargain purchase, a gain). Intercompany balances are eliminated in consolidation, but the basic idea is that the seller’s assets and liabilities are added to the acquirer, not just assets or just liabilities, and not offset against each other.

In consolidation, the acquired business is treated as part of the group, so both its assets and its liabilities are brought into the consolidated balance sheet. They are reflected at their acquisition-date fair values, and then combined with the acquirer’s own items. This ensures the group shows the full net resources it controls after the acquisition. Any difference between the purchase consideration and the net identifiable assets becomes goodwill (or, in a bargain purchase, a gain). Intercompany balances are eliminated in consolidation, but the basic idea is that the seller’s assets and liabilities are added to the acquirer, not just assets or just liabilities, and not offset against each other.