Acquisition Accounting

AAA

DEFINITION of 'Acquisition Accounting'

A set of formal guidelines describing how assets, liabilities, noncontrolling interest and goodwill of a target company must be reported by a purchasing company on its Consolidated Statement of Financial Position. With acquisition accounting the fair market value of the acquired firm is allocated between the net tangible and intangible assets portion of the balance sheet of the acquiring firm; any difference is regarded as goodwill. Also called "business combination accounting."

INVESTOPEDIA EXPLAINS 'Acquisition Accounting'

International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) require all business combinations to be treated as acquisitions for accounting purposes, meaning that one company must be identified as an acquirer and one company must be identified as an acquiree even if the transaction creates a new company. In the past, a method called "purchase accounting" was used in business combination accounting, but standard changes made acquisition accounting the only acceptable method.

RELATED TERMS
  1. Acquisition

    A corporate action in which a company buys most, if not all, ...
  2. Goodwill

    An account that can be found in the assets portion of a company's ...
  3. Continuity Of Interest Doctrine ...

    A doctrine which stipulates that a corporate acquisition can ...
  4. Pooling Of Interests

    A method of accounting that allows the balance sheets of two ...
  5. Merger

    The combining of two or more companies, generally by offering ...
  6. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Investing Basics

    Analyzing An Acquisition Announcement

    These deals can make or break investors' returns. Find out how to tell the difference.
  3. Investing Basics

    The Merger - What To Do When Companies Converge

    Learn how to invest in companies before, during and after they join together.
  4. Forex Education

    Mergers & Acquisitions: An Avenue For Profitable Trades

    When major corporate transactions have a big impact on the currency markets, you can benefit.
  5. Active Trading Fundamentals

    Trade Takeover Stocks With Merger Arbitrage

    This high-risk strategy attempts to profit from price discrepancies that arise during acquisitions.
  6. Options & Futures

    Pinpoint Takeovers First

    Use these seven steps to discover a takeover before the rest of the market catches on.
  7. Fundamental Analysis

    What is the difference between cost of equity and cost of capital?

    Read about some of the differences between a company's cost of equity and its cost of capital, two measures of its required returns on raised capital.
  8. Fundamental Analysis

    Is depreciation only used for tangible assets?

    Learn if tangible assets can be depreciated, as well as what other assets are eligible for depreciation so you can account for them accurately.
  9. Fundamental Analysis

    What does a high weighted average cost of capital (WACC) signify?

    Find out what it means for a company to have a relatively high weighted average cost of capital, or WACC, and why this is important to lenders and investors.
  10. Fundamental Analysis

    How do intangible assets appear on a balance sheet?

    Understand how various types of intangible assets are handled in a company's accounting and which of them you can find on a company's balance sheet.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center