Which of the following is required when preparing a consolidated balance sheet on the date of the formation of a subsidiary by its parent company?

A) The assets and liabilities of the subsidiary must be revalued to fair value.
B) The goodwill from the business combination must be calculated.
C) The parent's investment account must be eliminated against the subsidiary's share capital.
D) The parent's investment account must be eliminated against the subsidiary's retained earnings.

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Vanessa Valdivia · Accepted Answer

Final Answer : C, Explanation :  When preparing a consolidated balance sheet on the date of the formation of a subsidiary by its parent company, the parent's investment account must be eliminated against the subsidiary's share capital. This is because the parent company has already invested in the subsidiary and the investment is represented by the subsidiary's share capital. The goodwill from the business combination and revaluation of assets and liabilities to fair value may be necessary in subsequent periods, but are not required for the initial consolidation. Eliminating the investment account against the subsidiary's retained earnings would not be appropriate as it would create a negative balance in retained earnings.

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