Goodwill Balance

Question: On the date of acquisition, subsidiary revenues and expenses are omitted from consolidation totals

but assets and liabilities are included at fair value. Any excess payment made by the parent in purchasing the

subsidiary is reported as goodwill. In subsequent consolidations, what accounting is made of the subsidiary’s revenues, expenses, assets, and liabilities?

Answer: For subsequent balance sheets created after a business combination is formed, the book value of each

of the subsidiary’s assets and liabilities is added to the book value of those same accounts within the parent’s

financial records. However, the initial adjustments made at the date of acquisition to establish fair value must

continue to be included because they represent a cost incurred by Giant when the $900,000 payment was made to

acquire Tiny Company.

Thus, in future consolidations of these two companies, the $320,000 adjustment recorded to the land account will

be present as will the $210,000 portion of the payment assigned to the subsidiary’s trademark and the $270,000

goodwill balance. Those costs were not recognized by Tiny but were incurred by Giant at the time of acquisition

and must be reflected in the ongoing reporting of those assets.