The pre-acquisition entry is necessary to:

A) avoid overstating the equity and net assets of the group.
B) avoid understating the equity and net assets of the group.
C) avoid overstating the equity and net assets of the parent.
D) record the 'shares in subsidiary' account in the parent's records.

Pre-acquisition Entry

Accounting entries used to adjust the assets and liabilities of companies involved in a merger or acquisition to their fair values at the acquisition date.

Overstating Equity

This occurs when a company reports higher equity values than what is accurate, often due to overvaluing assets or undervaluing liabilities, which can mislead stakeholders about the company's financial health.

Net Assets

The total assets of an entity minus its total liabilities, indicating the entity's financial health and value.