In what scenario is the fair value adjustment relevant to consolidated financial statements?

Fair value adjustments are crucial in the context of consolidated financial statements because they reflect the true economic value of acquired assets and liabilities at the time of acquisition and are relevant in subsequent reporting periods as well.

When a parent company acquires a subsidiary, it must measure the identifiable assets and liabilities at their fair values as of the acquisition date. This allows for a more accurate representation of the financial position of the consolidated entity. Subsequently, the fair value adjustments are included in the consolidated financial statements, impacting the depreciation or amortization of assets and the overall financial results of the group.

Moreover, any changes in the fair value of certain assets or liabilities after the acquisition may also need to be accounted for in future reporting periods, particularly for assets that are subject to revaluation or impairment assessments.

Consequently, the relevance of fair value adjustments spans both the initial acquisition and the periods after that as the financial statements are prepared, ensuring that the consolidated financial results convey the actual performance and value of the combined entities.