i) IFRS 13 Fair Value Measurement defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To account for an acquisition, the acquiring company must measure the cost of what it is accounting for, which will normally represent:

• The cost of the investment in its own statement of financial position.
• The amount to be allocated between the identifiable net assets of the subsidiary, the non-controlling interest, and goodwill in the consolidated financial statements.

ii) The subsidiary’s identifiable assets and liabilities are included in the consolidated accounts at their fair values for the following reasons:

• Identifiable assets and liabilities recognised in the accounts are those of the acquired entity that existed at the date of acquisition. Assets and liabilities are measured at fair values reflecting conditions at the date of acquisition.
• Consolidated accounts are prepared from the perspective of the group, rather than from the perspectives of the individual companies. The book values of the subsidiary’s assets and liabilities are largely irrelevant because the consolidated accounts must reflect their cost to the group (i.e., to the parent), not their original cost to the subsidiary. The cost to the group is their fair value at the date of acquisition.
• Purchased goodwill is the difference between the value of an acquired entity and the aggregate of the fair values of that entity’s identifiable assets and liabilities. If fair values are not used, the value of goodwill will be meaningless.