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A parent buys 6 0 % of a subsidiary in one year and then purchases an additional 2 5 % in the next year. How
A parent buys of a subsidiary in one year and then purchases an additional in the next year. How is the second acquisition of treated?
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All subsequent purchases are based on the fair values at the time of the first acquisition and any adjustments are recorded as a gain.
The acquisition method views the subsidiary as whole and can only be used if of the subsidiary has been acquired through step acquisitions.
The valuation basis for the subsidiarys net assets was established in the first acquisition when control was obtained. Any differences between transaction prices and the underlying subsidiary book values are adjustments to Additional Paid In Capital.
A gain or loss is recognized from the adjustment to the subsidiarys fair value on the second purchase.
All subsequent purchases are valued based on the fair values at the time purchase and allocations will be calculated for each purchase.
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