In looking to consolidate the balance sheet, we're going to look at two entities here They're going to be the investor and the investee Now you can give other terms to these, you could have them as the buyer and the target You could have them as the holding company and the subsidiary Whatever we call them, we're going to use the same formula If I was to consolidate their cash, I would take the investor's cash plus the investee's cash And then plus or minus any transaction effects So for instance when I bought the investee, when I bought the target, I may have spent some cash So the transaction effect may be cash down. That then gives you your consolidated cash Now we need to do that formula for every single line of the balance sheet And the transaction effects are where we need to spend a bit of time understanding what kind of things happen during the transaction So the first one I'm going to look at is the equity I will initially take the investor's equity prior to the deal plus the investee's equity prior to to the deal. And then I add on a transaction effect I ask myself hang on, do the shareholders of the investee, do they still have their equity? Well no, they've been bought out. So we need to get rid of the investee's equity So again, I'll take the investor's equity prior to the deal plus the investee's equity prior to the deal minus the investee's equity prior to the deal. You kind of zero it out, you plus it and then you minus it Next up, how was the transaction financed? We already mentioned you may have spent some cash, alternatively you may have raised some debt So my consolidated debt line would be investor's debt prior to the deal plus the investee's debt prior the deal Plus any new debt that came about because of the transaction And that would get you your consolidated debt Transaction financing my have affected a number of lines in your balance sheet such as cash, debt equity We want to summarize these into a sources and uses of funds before we put them into the balance sheet Make sure we get organized Lastly you may have paid a premium above the book amount for your investee If your investee had net assets of 100 and you paid 120, your shareholders might ask "hey, why did you pay that extra 20?" When we consolidate we try to put that 20 onto the new consolidated balance sheet So first of all that may have been due to step ups The investee may have some property and we get to revalue that when we buy the company The property may have been in at 10, we now revalue it up to 15, so that would be 5 of the 20, we found it You may have stepped down, some of your assets may actually be worth less And when you've done all of those step ups and step downs, there may still be some value still leftover and in my case 15 We would thus say that is attributed to goodwill The investee has off balance sheet value, it may be due to it having a good reputation (maybe having a good customer list) It's very difficult for us to point a finger at those items and put them onto our balance sheet so instead we summarize them as goodwill