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.