Business combinations: Fair value adjustment

Does the FV adjustment happen in the subsidiaries books or only on consolidation?

Didn't find your answer?

Hi All

I just Wanted to confirm in a business combination scenario where the parent obtains 100% control of a subsidiary where during the business combination process the subsidiary assets have to be revalued to fair value. Does this revaluation happen on the subsidiary's financial statements?

Or does this adjustment simply form part of the consolidation adjustments when group accounts are prepared?

Thanks in advance!

Replies (2)

Please login or register to join the discussion.

avatar
By paul.benny
16th Feb 2021 08:48

Fair value adjustments should be recorded at subsidiary level.

Doing at consolidation adds considerable complication for future years - for example for fixed assets, you then have to adjust depreciation and deferred tax each year, as well as dealing with disposals.

Thanks (0)
Replying to paul.benny:
John Toon
By John Toon
17th Feb 2021 15:39

I beg to differ. The FV adjustments on a business combination form part of the consolidation adjustments. You could choose to reflect some, but not all of these in the subsidiary accounts - case in point you'd recognise contingent liabilities on a business combination which you couldn't reflect in the individual stats of the subsidiary.

Paul is right in saying that you'd need to keep a track of FV adjustments and the potential impact of things such as depreciation on these.

You can have similar issues on aligning accounting policies in a business combination. It's easier to do this, but doesn't have to be done. Another classic example would be goodwill being amortised in a sub applying FRS 102 having to be consolidated into a parent company applying IFRS were you can't amortise goodwill and so have to write back amortisation adjustments post acquisition in consol.

Thanks (0)