Question

M Ltd is a subsidiary of C Ltd. M Ltd’s property, plant and equipment in its separate financial statements are measured using the revaluation model prior to acquisition. On the date of acquisition, the consolidation worksheet entries required, in relation to any fair value adjustments would be:

a. no adjustment required

b. for both a revaluation increment and decrement

c. when there is an decrease in revaluation

d. when there is an increase in revaluation

Answer 1

Since M Ltd;s property, plant and equipment are measured using revaluation model prior to acquisition, there is no need to measure the PPE at fair value at the date of acquisition.

After applying revaluation model measure, the asset is carried at their fair value at the date of revaluation less sebsequent depreciation.

On the date of acquisition also, acquirer must measure the cost of business combination at their fair value for purchase consideration.

Hence, the assets are already measured at fair value just before the acquisition as per revaluation model, so there is not need to do any adjustment.

Option a. No adjustment required is correct

b. for both a revaluation increment and decrement - Incorrect since assets are already measured at fair value

c. when there is an decrease in revaluation- Incorrect since assets are already measured at fair value and any decrease or increase already adjusted before acquisition by the company in their financial statements.

d. when there is an increase in revaluation - Incorrect since assets are already measured at fair value and any decrease or increase already adjusted before acquisition by the company in their financial statements.