In the preparation of consolidated financial statements, why are adjustments required to the subsidiaries assets and liabilities if the carrying amounts are not equal to fair value?

Using the following example, demonstrate the adjustment required when the subsidiary has a contingent liability for damages disclosed, for which the fair value is determined to be $10,000. Explain in detail the journal entry, line by line. Then show how this would be posted in the consolidation worksheet, highlighting the effect to the groups financial statements.