Which Method of Accounting Will Generally Be Used When One

question 12

Multiple Choice

Which method of accounting will generally be used when one company purchases less than 20% of the outstanding stock of another company?

• A) Only the fair value method may be used.
• B) Only the equity method may be used.
• C) Either the fair value method or the equity method may be used, depending upon the relationship between the companies.
• D) Neither the fair value method nor the equity method may be used, regardless of the level of ownership.

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Definitions:

Business Combination

The process of bringing two or more companies together through various forms of financial transactions, resulting in a single combined entity.

AASB 2

An accounting standard issued by the Australian Accounting Standards Board that covers the accounting requirements for share-based payment transactions.

Business Combination

A transaction or event in which an acquirer obtains control of one or more businesses.