In a business combination, net identifiable assets represent the subsidiary’s total assets minus its total liabilities. The fair value of net identifiable assets is compared with the fair value of purchase consideration and non-controlling interest, if any, to find out if any goodwill arises on acquisition.
Goodwill arising in a business acquisition equals the excess of the sum of fair value of purchase consideration and fair value of non-controlling interest over the fair value of net identifiable assets of the subsidiary.
Consolidated financial statements are the financial statements prepared by a company (the parent) which has investments in more than 50% of the common stock of other companies (called subsidiaries). Consolidated financial statements are prepared by combining the parent’s financial statements with the subsidiary’s.
Push down accounting is a method of accounting required for ‘substantially wholly-owned subsidiaries’ and encouraged in other cases in preparation of their individual financial statements. It requires the subsidiaries to adopt the fair values of the subsidiary’s net identifiable assets.
A step acquisition (also called piecemeal acquisition) in a business combination in which an investor obtains control over an investee through multiple transactions. When the investor obtains control of the investee, it remeasures any investment previously held to fair value and consolidates the investee going forward.
Consolidated retained earnings is a component of shareholders equity on a consolidated balance sheet which represents the accumulated earnings that accrue to the parent. It equals the parent’s retained earnings purely from its own operations plus parent’s share in the subsidiary's net income since acquisition.
Consolidated net income is the sum of net income of the parent company excluding any income from subsidiaries recognized in its individual financial statements plus net income of its subsidiaries determined after excluding unrealized gain in inventories, income from intra-group transactions, etc.
Non-controlling interest is a component of shareholders equity as reported on a consolidated balance sheet which represents the ownership interest of shareholders other than the parent of the subsidiary. Non-controlling interest is also called minority interest.
In consolidation, purchase consideration is the cash or stock, or other assets transferred by the acquirer to the acquiree or its shareholders in return of the acquiree’s assets or its stock.
Purchase price allocation is the process through which purchase consideration paid in a business combination is allocated between the assets of the acquiree and goodwill, if any.