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Chapter 19

3.4 Subsidiary adjustments

Fair value adjustments

At the date of acquisition, the group accounts must recognise and account for the
subsidiary's net assets at their fair value. If you are told in the question that the fair
value exceeds the carrying amount then you must adjust as follows.

The adjustment:

 Increase NCAs to bring up to fair value

 Increase subsidiary reserves (both columns W2 – assuming the asset has not
been sold)

Fair value adjustments may also be necessary when the fair value is BELOW
carrying amount, in which case the adjustment noted above is reversed.

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