Consolidating 100 owned subsidiary
Differential is the difference between actual price paid by the investor and book value of the assets on the investee’s books. pays 0,000 cash (this is ABC’s fair value assessment).Normally, differential is positive, i.e., the investor normally pays more than the assets’ book value. acquires all of the outstanding stocks of XYZ Corp. This fair value consideration by ABC is 0,000 in excess of XYZ’s book value of 0,000.Before we attempt to understand “differential,” let us review some content from the third module.Mainly it is important to understand the term “consolidation.” Put simply, consolidation is merging two or more things into one.The companies' financial results, therefore, are consolidated on a single set of statements.
All of the subsidiary company's assets and liabilities appear on the parent company's balance sheet, and all of the subsidiary company's revenue, expenses, gains and losses appear on the parent company's income statement.The purchase price in any acquisition is determined by the market value of shares acquired by the purchasing entity.This is contrary to paying book value for the seller’s or investee’s assets and liabilities.However, in the owners' equity portion of the balance sheet, the company maintains a separate account that tracks the value of the non-controlling interest in the subsidiary -- that is, the portion of the subsidiary business not owed by the parent company.The subsidiary's net income -- its profit -- gets fully reported on the parent's income statement.