Walk me through the complete first-time consolidation of a new subsidiary.
A core Group Accounting interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
At acquisition (month 0): determine the acquisition/control date; obtain the target's balance sheet and fair-value its identifiable assets and liabilities (recognizing previously unbooked intangibles — brands, customer relationships — and contingent liabilities); measure NCI (fair value or proportionate share); compute goodwill = consideration + NCI (+ any prior interest at FV) − fair value of identifiable net assets; recognize deferred tax on the fair-value uplifts; and post the capital-consolidation entry that eliminates the parent's investment against the sub's equity and books goodwill/NCI. Set the entity up in the consolidation system, map its chart of accounts to group, align accounting policies to IFRS, and identify intercompany relationships. From month 1 onward: consolidate the sub's results from the acquisition date, amortize/depreciate the fair-value adjustments (and unwind the related deferred tax), eliminate all intercompany balances and transactions and any unrealized profit, translate if it's a foreign-currency entity (current-rate method, differences to CTA), and test goodwill for impairment at least annually. Finalize any provisional PPA within the 12-month measurement period.
WHAT INTERVIEWERS LISTEN FOR
- ✓Month 0: acquisition date, PPA + intangibles, NCI, goodwill, deferred tax, capital-consolidation entry
- ✓System setup, policy alignment, map IC relationships
- ✓Ongoing: consolidate from acquisition date, amortize FV uplifts (+ DT), eliminate IC/unrealized profit, translate
- ✓Annual goodwill impairment test; finalize PPA within 12 months
COMMON MISTAKES
- ✗Skipping PPA/intangible/deferred-tax steps
- ✗Not amortizing fair-value uplifts
- ✗Forgetting IC eliminations or the measurement-period finalization
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RELATED QUESTIONS
- Explain capital consolidation under IFRS 3.
- How do you account for a step acquisition where control is achieved?
- How do you handle a mid-year change in consolidation scope (acquisition or disposal)?
- How do you account for non-controlling interests (NCI)?
- When is proportionate consolidation used?
- Walk me through the mechanics of a step acquisition, including increases after control is obtained.