Consolidations happen in the real world and therefore, there is accounting ...

Consolidations happen in the real world and therefore, there is accounting required to apply for it. The following is an example, one of many in the world, on how to work through a consolidation:
 
Company A pays 38 for Company B, which has a book value of 33. Therefore, it is important to eliminate the subsidiary accounts (investment and equity). Differential will be the plug of the difference.

• Dr. Owner’s Equity (Common Stock and Additional Paid in Capital APIC) – 33
• Dr. Differential – 5
• Cr. Investment in Company B – 38

 
Company B’s fair value was 33, plus write-ups for inventory. Company A paid 38 generating goodwill. Assuming the write up was valued at 1, goodwill then will be at 4.

• Dr. Goodwill 4
• Dr. Inventory 1
• Cr. Differential 5

 
Intercompany sale of equipment requires to be eliminated and depreciation expense will be recalculated. Between company’s B’s credit and A’s debit, it resulted in a net debt of 3.3. Company B eliminates depreciation of 4.2, which results in a post sale depreciation expense for Company A of .15, therefore, requiring Company B to eliminate the gain on sale of .9.

• Dr. Equipment 3.3
• Dr. Depreciation (X) .15
• Dr. Gain on Sale .9
• Cr. Accumulated Depreciation 43.5

 
Intercompany sales, COGS, and profit MUST be eliminated. If sales were 6, and profits were 2.4, and the ending inventory was .48, then COGS is plugged and the difference.

• Dr. Sales 6
• Cr. COGS 5.2
• Cr. Inventory .48

 
Eliminating intercompany AP and AR can be done via (assume .6 value)

• Dr. AP .6
• Cr. AR .6

​cc: Reporting