Question

When preparing an acquisition analysis as part of a business combination, why is the date so important? Explain with reference to ‘carrying amounts’ and ‘fair values’ of assets.

Answer 1

The date of acquisition is considered as the date at which the buyer obtains control of the target business. This date is very important as the value of all the amounts included in the business combination are measured at this date and the buyer starts consolidation of the target for accounting.

fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

• The carrying value of an asset is based on the figures from a company's balance sheet.
• the fair value of an asset is the amount paid in a transaction between participants if it's sold in the open market.