What Is the Correct Method of Treating an Acquisition Differential

question 62

Multiple Choice

What is the correct method of treating an acquisition differential arising from a Preferred Share Issue?

• A) It should be treated as an adjustment to goodwill.
• B) It should be pro-rated across the subsidiary's identifiable assets and liabilities.
• C) It should be expensed in the current year.
• D) It should be adjusted to a contributed surplus or retained earnings account.

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Definitions:

Risk-Free Rate

The theoretical return on investment with no risk of financial loss, typically represented by the yield of government securities.

Time To Expiration

This refers to the remaining time until a derivative contract, such as an option or futures contract, becomes invalid or ceases to exist.

Underlying Security

An asset, such as a stock or bond, on which financial derivatives like options and futures are based.

Delta

In finance, it represents the ratio that compares the change in the price of an asset, usually a marketable security, to the corresponding change in the price of its derivative.