Explain capital consolidation under IFRS 3.
A core Group Accounting interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
The parent's investment is eliminated against the subsidiary's revalued equity. We perform a PPA: all identifiable assets/liabilities at fair value, recognize intangibles, calculate DTLs on adjustments. Residual = goodwill. Example: Purchase price EUR 10M, FV net assets EUR 7M = goodwill EUR 3M. Tested annually for impairment, not amortized.
WHAT INTERVIEWERS LISTEN FOR
- ✓Eliminate parent investment against equity
- ✓Purchase price allocation (PPA)
- ✓Fair value identifiable assets/liabilities
- ✓Recognize intangible assets
- ✓Calculate goodwill as residual
COMMON MISTAKES
- ✗Amortizing goodwill
- ✗Ignoring deferred tax liabilities
- ✗Using book values instead of fair values
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