In: Accounting
a. As per the Accounting Standards, during Consolidation , Net Assets of Subsidiary are always taken out at their fair value along with recording the Consideration at Fair value. Net Assets' acquisition at fair value is done to depict the correct picture of Goodwill at the time of Consolidation. The another reason to do this is that Seller Company sells their company at the Price based on the fair value of its net assets and not at the carrying value as to increase the Consideration payment anyone can increase the carrying value in their Balance Sheet. So this is not a correct way to consolidate.
And to do this adjustments are made in the consolidation worksheets. This further can be done in 3 different ways such as Fair Value adjustments to recognised assets like Fixed Assets and/or Inventory and then the difference between consideration paid and the net identifiable assets is termed as Goodwill. Another way is Fair Value Adjustments to Internally Generated Assets. The Subsidiary may also have some internally generated assets which are unrecognised in standalone financial statements like Research Expenditure. There should be fair value adjustment for these also. Another one is Fair Value Adjustment of Contingent Liabilities. This is different as in Consolidation these also are to be taken at Fair Value as it affects the Consideration also.
b. Net Assets not measured at Fair Value are Held to Maturity investments and Financial Liabilities at Amortized Costs or/and Loans and Receivables. These all are measured at Amortized Cost using Effective Interest Method.
Their Net Impairment Loss are recognized under the- Impairment Losses on Financial Assets (net).