Company X Acquired Company Y When the Carrying Value of Company

question 15

Multiple Choice

Company X acquired Company Y when the carrying value of Company Y's plant was $50 000. The fair value of the plant on acquisition date was $65 000. The company tax rate was 30%. How much is the amount of the business combination valuation reserve that must be recognised?

• A) $65 000
• B) $15 000
• C) $10 500
• D) $3 500.

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Definitions:

Gain Potential

The possible financial profit that can be achieved from an investment, considering the risk and opportunity cost.

Trading Securities

Financial assets that are purchased with the intention of selling them in the short term to profit from price fluctuations.

Fair Value

An estimated market value of an asset or liability based on current market prices or valuations.

Temporary Investments

Short-term investments made by a company in securities that can be easily converted into cash, typically held for a year or less.