In an M&A consolidation, what is done to target equity?

In an M&A consolidation, what is done to target equity?

• A. Eliminate target equity from consolidation
• B. Add to parent equity
• C. Keep as separate line item
• D. Record as goodwill

Answer: (A)

In consolidation, the group is treated as a single economic entity, so the target’s equity is eliminated to avoid double counting. The parent’s investment is combined with the subsidiary’s net assets, and after eliminating the subsidiary’s equity accounts, the consolidated balance sheet reflects assets and liabilities of the merged entity. If the parent doesn’t own 100%, a noncontrolling interest is shown separately in equity. The difference between what was paid and the fair value of the net assets becomes goodwill (or a bargain purchase gain, if applicable), not part of the target’s equity.

In consolidation, the group is treated as a single economic entity, so the target’s equity is eliminated to avoid double counting. The parent’s investment is combined with the subsidiary’s net assets, and after eliminating the subsidiary’s equity accounts, the consolidated balance sheet reflects assets and liabilities of the merged entity. If the parent doesn’t own 100%, a noncontrolling interest is shown separately in equity. The difference between what was paid and the fair value of the net assets becomes goodwill (or a bargain purchase gain, if applicable), not part of the target’s equity.