• Avatar of John Moffat says

      Because they are two completely different things.

      The fair value adjustment at the date of acquisition is simply to get a fairer measure of the goodwill.

      The unrealised profit occurs because one company has previously sold to the other company at a profit and some of the goods remain in inventory. The individual companies are entitled to their profits in full – it is only in the consolidated accounts that we wish to show only the profit actually realised by the group. Prior to the date of acquisition there was no consolidating and so there was no such thing as unrealised profit.

  1. Avatar of Shahir says

    My Sir taught me to do consolidation in about five steps.
    First determine the % of ownership
    FInd the fair value of net adjustments
    Group retained earnings
    My questions for u.. is that under the second step it contains both acquisition and on reporting date.. Where should we minus the unrealized profit.. ???
    We calculate the post acquisition retained earning under the second step…

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