Consolidating two balance sheets
These transactions can be simple or complex, but generally involve the acquirer buying a majority of the stock of the target company.
This majority position enables the acquirer to exercise control over the other company.
There are many reasons for these transactions, and this helps to explain their frequency.
One business may acquire another to eliminate a competitor, to gain access to critical technology, to insure a supply chain, to expand distribution networks, to reach a new customer base, and so forth.
For example, the cost of land held by Sledge may differ from its current value.
Assume Sledge’s land is worth 0,000, or ,000 more than its carrying value of ,000.
Notice the highlighted Investment in Sledge account.Note that the Investment in Sledge account is absent.It has been replaced with the assets and liabilities of Sledge!What about the other ,000 of purchase differential (0,000 total differential minus ,000 attributable to land)? Whenever one business buys another and pays more than the fair value of all the identifiable pieces, the excess is termed .