(The) acquirer deconsolidates a target firm when it no longer has control. Loss of control occurs due to the acquirer (selling) target firm shares or the target (issuing) new shares which reduce (the) acquirer's ownership. What is the accounting for deconsolidation? One, we stop presenting consolidated financial statements. Two, we remove all assets including goodwill and liabilities, and their associated fair values of the target firm, as well as non-controlling interests from the acquirer's balance sheets. Three, we recognize new investment, if any; any consideration received from the transactions, such as cash; and gain and loss from the deconsolidation. How do we calculate gain or loss from the deconsolidation? Gain and loss from deconsolidation is equal to: one, fair value of consideration received, such as cash; plus fair value of any retained interest; plus carrying amount of non-controlling interest; minus carrying value of net book value of assets, fair value adjustment, and goodwill. Let me please give you an idea on where the gain and loss from (the) deconsolidation formula comes from. In a consolidated balance sheet, we have acquirer assets, target assets, and the goodwill on the asset side. On the liabilities plus shareholders equity side, we have acquirer liabilities, target liabilities, acquirer shareholder's equity, and non-controlling interest. In a deconsolidation, the consolidated balance sheet (changes) as follows. One, in the assets side, we remove target assets and the goodwill. Instead, we create consideration received, which is how much cash the acquirer received and the new investment in target firm to record the remaining ownership in the target firm. Two, in the liabilities plus shareholders equity side, we remove target liabilities and non-controlling interest. Instead, we create gain and loss from deconsolidation under retained earnings. In this framework, gain and loss from deconsolidation is actually the plug which makes total assets to be equal to liabilities plus shareholder's equity. Now, let's go through an example on deconsolidation. Firm A and Firm T balance sheets, as well as the consolidated balance sheet on December 31st, 2022, are presented in the next slide. Firm A owns 80 percent of Firm T. Firm T's net assets' values approximate their fair values except plant, property, and equipment. Plant, property, and equipment has (a) remaining fair value adjustment of $300 and five years of life. Here are Firm A and Firm T separate balance sheets, as well as the consolidated balance sheet. Please note that consolidated plant, property, and equipment is higher than the sum of plant, property, and equipment of Firm A and Firm T due to fair value adjustment. Moreover, there is a non-controlling interest in the consolidated balance sheet because Firm A owns just 80 percent of Firm T. Firm A sells 70 percent ownership in Firm T, so Firm A still owns 10 percent of Firm T on January 1st, 2023, for $2,000. The 10 percent retained investment in Firm T is valued at $250. The first question asks to calculate the gain and loss from deconsolidation on January 1st, 2023. To calculate the gain and loss from the deconsolidation, we use the framework we learned in this lesson. First, fair value of consideration received, $2,000. We next add the fair value of any retained investment, which is $250. Third, the carrying amount of non-controlling interest is $300. Finally, we need to deduct the carrying value of net book value of assets, fair value adjustment, and goodwill. Net book value of assets of Firm T is total assets of $3,000 minus total liabilities of $2,000, which is equal to $1,000. Fair value adjustment is $300, which comes from the fair value adjustment of plant, property, and equipment. Goodwill is $200, which is given in the consolidated balance sheet. If we sum book value of net assets, fair value adjustment, and the goodwill, we find $1,500. We can now calculate the gain from the deconsolidation as $1,050. The second question asks to provide the updated balance sheet of Firm A on January 1st, 2023. First, Firm A cash balance on January 1st, 2023, increases by $2,000 due to the cash received in selling 70 percent ownership. Second, investment in Firm T is created with a balance of $250 for the remaining 10 percent ownership. Third, shareholders' equity increases by $1,050 due to the gain from the deconsolidation we calculated in the previous slide. In summary, this module covered accounting for reverse acquisitions, step acquisitions, and deconsolidation. Next module will introduce spin-offs and equity carve-outs.