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I have a Account Test1 with Address Line 1, City and State. I have another Account Test2 with Address Line1. Test1 is the parent of Test2. In Case object, i have a field where I am populating value of Test2 as name and Address Line1. I want to merge Address Line-1, City and State in one of the fields of Case object. Can we do this using formula field?

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Yes, You can look to parent in formula fields. It would be simple:-

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You would like to read :- What Is a Cross-Object Formula?

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