The consolidation adjustment account is the difference between the depreciation that occurs when you offset the capital amount of the subsidiary corresponding to the investment amount (subsidiary stock) of the parent company and the parent company’s ownership. There are many technical terms in transactions among companies, but even in the M & A dictionary, we often see the word “consolidation adjustment account”. Currently the expression “consolidation adjustment account” has been abolished systematically. As an indication on the financial statements, “goodwill” or “negative goodwill” has been changed. In cases where disadvantages arise due to the offsetting result, when it is a lot, expressions of bad situation are expressed by using negligence called negative goodwill. As the consolidation adjustment account is similar to “goodwill”, it is included in intangible assets in the consolidated balance sheet. Depreciation should be amortized using the straight-line method within 20 years. This consolidated adjustment account is considered to be caused by acquiring shares at a price exceeding the market value of the net assets at the time of acquisition of the subsidiary taking into account the excess profitability when the parent company acquires the shares of the subsidiary The difference is considered to be the same as goodwill.
It is used for collecting investment when making a company a subsidiary
In many cases it is used to collect the amount invested when converting another company from a parent company into a subsidiary, which can often be said to be disadvantageous for subsidiaries. The reason for the increase in investment by the parent company is that the parent company has overwhelmingly higher excess earning power compared to subsidiaries. This is due to the intangible profit, such as the work capacity of employees that the parent company does not appear directly in money because the parent company succeeds in continuous business. And since the consolidation adjustment account will increase naturally as the company’s duration increases, it can be interpreted that it is necessary to amortize and compensate periodically. So it is said that the consolidation adjustment account that was capitalized must be amortized over a certain period of time in the same way as goodwill. On the other hand, consolidation adjustment accounts may be credited depending on the acquisition price of subsidiary shares. In that case, the differences will be recorded as liabilities and will be amortized in the same way as those capitalized.