To consolidate the balance sheet, there is a magic formula that will get you through 99% of issues The magic formula says you start with your investors figure Plus your investee's figure And then plus or minus any transaction effects and that will then get you to your consolidated figure So for instance, if I was looking to consolidate the inventory line of the two balance sheets I take my investor's inventory plus my investee's inventory Plus/minus any transaction effects, maybe inventory got revalued during the transaction So consolidation of the balance sheet says you need to take each individual line item and apply this formula I like to use the formula, A + B + C = D So company A plus company B, plus C (is my consolidation transaction effects) Gets me D, all of them added together Now it's the transaction effects that is the question mark, what kind of transactions might come up? Well the first one we have is the shareholders of the investee have to be bought out So we zero out the investee's shareholders' equity on consolidation So if I was going to consolidate equity, I'll take the investor's equity plus the investee's equity and then I would subtract the investee's equity That would be my transaction effect, because those shares don't exist anymore (they've been ripped up) I like to think of them being zapped to get rid of them Next up, the transaction must be financed. So we may have some extra items that need to be added to our balance sheet Which we summarize in a sources and uses of funds table Good examples would be debt issued and equity issued So if I was consolidating my debt line, I would have investor's debt, investee's debt plus debt issued (that would be my transactions effect) In addition, we have to calculate the premium paid above the book amount If the book amount of net assets or equity of the target is just 100 And we've paid 140, we have to question where is that value? So we then allocate that to component parts, maybe we need to have a step up of the target's PP&E for instance Maybe we have to have a step up of the target's intangibles Maybe we need to have a step down, maybe their inventory isn't worth as much as the book value The remainder is then given to goodwill So in my example that will now affect PP&E line I take my investor's PP&E, plus investee's PP&Es plus a step up in PP&E It would affect inventory again, so investor's inventory plus investee's inventory plus step down of inventory I then need to consolidate the intangibles line as well and the consolidated goodwill line would be affected The investor's existing goodwill, the investee's existing goodwill plus/minus any new goodwill from the deal