To create the pro-former opening balance sheet. We need to take the two companies balance sheets and squash them together.

We do this by taking the acquire balgeet adding on the target balance sheet.

But then add or subtract any deal adjustments and that's going to be our Focus here.

But all together that gets you to your Consolidated or proforma balance sheet.

So what are these deal adjustments? Well, we're going to split them. Well firstly have a look at the deal adjustments which affect our assets.

The first one here is the excess cash being used for funding purposes. Well that needs to be spent perhaps we're using some of the cash to buy the target's equity.

The next one is that you need to recognize any Goodwill being created and eliminate any Target existing Goodwill.

Then recognize any internally generated intangible such as Brands which haven't been recognized before on the company's balance sheets. You're now allowed to recognize them.

And lastly, you may need to step up to fair value any other assets. We're thinking particularly here PP and E.

So that's the assets what about liabilities and equity? Well, the first one is you need to recognize any brand new acquisition debt. Maybe you've taken on debt to help fund the purchase of the target.

You also need to potentially refinance the targets existing net debts. So that means they're old debt need to get rid of that and their old cash.

That will then need to be replaced with the new debts and you may need to add that on top of the acquisition day.

The equity funding of the deal has to be recognized that could be a secondary offering to the public in which case you'll also get some cash, but then you'll spend the cash immediately when you buy the targets or you'll just issue shares to the Target shareholders.

You need to eliminate the target companies Equity as soon as you buy the shares think about what you're doing you're ripping them up. You don't need them anymore. You don't owe any money to them.

Next up a fees and we've got three types of fees here. Your debt fees need to be deducted from debt either capitalized onto the balance sheet.

Equity fees their deducted from share capital and lastly any m&a fees you deduct them from retained earnings.

You also need to recognize any non-controlling interest if less than 100% acquisition is being carried out.

And lastly a deferred tax liability has to be recognized in share deals if step ups are occurring.

Look to the left. Look at that bottom asset item. We said step up to fair value any assets. We now need to recognize the Deferred tax liability on them.