During consolidation, what happens to the acquiree's shareholders' equity?

During consolidation, what happens to the acquiree's shareholders' equity?

• A. It is carried forward separately
• B. It is eliminated
• C. It is reclassified to noncontrolling interest
• D. It remains in equity but not recognized

Answer: (B)

In consolidation, the acquiree’s equity is eliminated against the parent’s investment in the subsidiary so the group presents a single set of equity in its consolidated financial statements. This removal avoids double-counting the same equity, since the owners of the acquiree are now effectively part of the consolidated entity. If the parent doesn’t own 100% of the subsidiary, the portion of the subsidiary’s equity not owned by the parent is shown separately as noncontrolling (or minority) interest in equity. So, when a full acquisition occurs, the acquiree’s equity is eliminated; in partial acquisitions, only the noncontrolling portion remains truly separate from the parent’s equity.

In consolidation, the acquiree’s equity is eliminated against the parent’s investment in the subsidiary so the group presents a single set of equity in its consolidated financial statements. This removal avoids double-counting the same equity, since the owners of the acquiree are now effectively part of the consolidated entity. If the parent doesn’t own 100% of the subsidiary, the portion of the subsidiary’s equity not owned by the parent is shown separately as noncontrolling (or minority) interest in equity. So, when a full acquisition occurs, the acquiree’s equity is eliminated; in partial acquisitions, only the noncontrolling portion remains truly separate from the parent’s equity.