I am bit confused in
Question 21
Excess of purchase price is allocated to inventory and PP&E = Fair value - Book value
Why is excess of purchase price allocated to Debt = Book value - Fair value ?
Question 22
in calculating consolidated balancesheet
Parents Inventory book value + Fair value of acquired company’s inventory.
Why is Parents Net PP&E + Book Value of acquired company’s net PP&E?
I will come to this example again soon… and see if this still makes sense…
Because it’s a liability; if the fair value is higher than the book value, you’ve bought less value, whereas if the fair value of an asset is higher than its book value, you’ve bought more value.
Question 22
in calculating consolidated balancesheet
Parents Inventory book value + Fair value of acquired company’s inventory.
Why is Parents Net PP&E + Book Value of acquired company’s net PP&E?
That one doesn’t make sense. Check the errata, perhaps.
S2000magician:
Because it’s a liability; if the fair value is higher than the book value, you’ve bought less value, whereas if the fair value of an asset is higher than its book value, you’ve bought more value.
can I say in case of debt, we just use higher value - lower value? (regardless of book value is higher or fair value is higher)